IMF issues five warnings to Portugal

 In Economy

Portugal is not out of the woods in terms of inherent structural weaknesses to its economy and public sectors according to the IMF.

And despite the current boom in tourism and the property market and the main risks to the economy coming from outside the country, there are internal problems that could undermine the economic performance of the country.

On Friday the IMF published its 7th post-Troika evaluation on Portugal. Brexit, protectionism and a slowdown in the Euro Zone economy were just some of the external risks which could cause shocks to the Portuguese economy to which are added weak policies and rigid expenditure in the Portuguese economy.

According to IMF estimated projections Portugal’s economy will contract from 2.7% in 2017 to 2.3% by the end of this year and 1.8% by Q1 of 2019. The forecast for 2021 is growth of 1.4%.

On the domestic front, there is a risk that the government might adopt weaker policies that could undermine investor confidence and the business environment and possibly result in increased budgetary rigidities and a reduction in the quality of government expenditure.
In contrast, macroeconomic, macro-financial and structural policies would not only bolster the outlook, but would also increase Portugal’s resilience to market volatility and other shocks including in the event of spillovers from other euro area countries. On the upside, more robust cyclical developments than currently projected could materialise.

The IMF says that despite declining in the last few years, high public debt remains a major vulnerability, requiring continuing fiscal consolidation efforts. The current favourable conditions provide an opportunity to front-load the multi-year fiscal consolidation envisaged in the Government’s stability programme, thereby speeding up public debt reduction, contributing to favourable borrowing conditions throughout the economy.

It also highlights important progress made in repairing the banks’s balance sheets, but warns that continued effort is needed to reduce vulnerabilities.