Disillusioned with what they say is not ambitious budgets and reduced economic growth prospects, the International Monetary Fund (IMF) predicts that the Portuguese debt not lower of 120% of GDP by the end of this decade, contrary to what happened six months ago.
in the third report of the Portugal post-program monitoring made public on Friday, the IMF draws a concern scenario regarding the evolution of the Portuguese economy and its public finances, both in the immediate as in the medium term. It begins by noting that the effort of fiscal consolidation and the reform momentum dropped by as early as 2015, even with the previous government.
Then says the State Budget (OE) Portuguese for this year “does not seem ambitious enough “, estimating that the deficit be 0.7 points above the forecast by the government. And warns that the economy, without further structural reforms and without a focus on competitiveness, has already reached the maximum possible speed, turning from now to a slowdown trend.
After plotting this scenario not surprising that the IMF, in analyzing the sustainability of public debt that is usually done in such reports, has passed to provide that this indicator remains above 120% of GDP at the end of this decade, something that has not happened for six months when the IMF published the report of the second round of post-program monitoring.
six months ago the Fund via debt spending of 124.4% of GDP in 2016 to 118.6% in 2020. Now, calculates that pass a debt of 127.9% in 2016 to 124.5% in 2020. the barrier of 120% of GDP is an important reference for the IMF to calculate debt sustainability and the ability of countries meet their own commitments to the IMF.
at this level, the technicians who were in Lisbon at the beginning of the year and that produced the IMF report warns that while “it is expected that the risk to the ability of Portugal pay to the Fund are manageable in the base scenario, “these” are rising “.
OE unambitious
for the short term, and specifically with regard to the OE this year, the fund said that the document “does not seem ambitious enough to put public debt on a steady path of descent, containing significant execution risks.” According to IMF calculations, the Portuguese public deficit in 2016 will be, not 2.2% as provided by the Government, but 2.9% in the rule of the 3% threshold imposed by the European Union for a country leaving the excessive deficit procedure.
But beyond the nominal deficit, the failure of Portugal also extends to the evolution of the structural budget balances. The Fund estimates that the structural primary balance (which does not include the interest expense) will deteriorate by 0.5 points in 2016. This result seems to get away from the government goal of reducing the structural deficit by 0.3 points.
the Fund back to defend that to meet the budgetary targets, the government must adopt measures and that these need to focus on wages and pensions. “Reforms in spending are necessary to contain the pressures of public wages and pensions, accounting for 25% of GDP,” says the Fund, which sees the measures adopted in the State Budget for these areas as a retreat in the desired way. The recently adopted budget changes will disrupt the balance of the economy, with the focus to shift to “improving the competitiveness for support to non-export sectors.”
Regarding the evolution of the economy, the Fund is also much more pessimistic than the government, pointing to a growth of 1.4% this year (compared to 1.8% of the executive), with an expected further slowdown in the following years, to 1.3% in 2017 and 1, 2% below. The IMF staff believe that without further structural reforms, the economy will slow down and argue that the economy has begun to show signs of having reached its maximum speed in 2015, going from now download the rhythm.
based on the opinion of the technicians who were on mission to Portugal at the beginning of the year (led by Subir Lall), the IMF executive board (led by Christine Lagarde) made its assessment of the Portuguese situation. He praises “the commitment of the Portuguese authorities in relation to fiscal and debt sustainability,” but stresses “the importance of developing contingency plans to ensure that the objectives of the 2016 budget are met, rationalizing public spending to contain pressures from wages the civil service and pensions and to keep the budget pads “.
the Government’s response
the government has reacted to criticism of the IMF. In a statement issued on Friday by the Ministry of Finance, it is highlighted that the IMF say that the budget targets were not met last year, marking also the fact that “some of the structural deficiencies that the IMF identifies the economy Portuguese were not resolved during the adjustment program. “
with regard to the IMF forecasts for this year, the Ministry of Finance argues that these” find no support in the developments since January, such as strict budgetary implementation of the first two months of the year, successful debt placement and strengthening of confidence indicators for households and companies. ” “The Government reaffirms its commitment to achieve its targets through the strict implementation of the State Budget for 2016,” the statement concluded.
Similarly, alongside the report of the technical mission of the IMF Portugal is also published a response to the document Carlo Cottarelli, which is one of the 24 directors of the IMF, with the role to represent the six countries governments, including Portugal (the others are Albania, Greece, Italy, Malta and San Marino ). In its statement, the economist, who has led the IMF’s budget department, says that “a more balanced analysis – highlighting not only the challenges that remain but also some important results have been achieved in recent times – would have been more appropriate” even stating that if the IMF staff wear “less adjectives and adverbs,” the discussion could be more constructive.
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