The EU/IMF adjustment programme for Portugal: Achievements and remaining challenges

Transcription

1 The EU/IMF adjustment programme for Portugal: Achievements and remaining challenges Martin Hallet European Commission Economic and Financial Affairs Resident Advisor in Portugal 20 June 2012

2 Outline 1.Background 2.Programme implementation 3.Progress on economic adjustment 4.Debt sustainability and financing 5.Outlook

3 Background More than one year ago, the Portuguese government requested international financial support EU, ECB and IMF ('Troika') agreed with the government on an adjustment programme of about EUR 78 billion over 3 years, subject to policy conditionality ('Memorandum of Understanding', MoU)

4 Underlying problems Globalisation, sluggish productivity growth and a deterioration of competitiveness Easy financing conditions facilitated the build-up of private and public debt Accumulation of macroeconomic imbalances: high current account deficits and an increasing stock of external debt Problems further exacerbated by global financial crisis and euro area crisis

5 Net lending (+) or net borrowing (-), % of GDP forecast Net lending (+) or net borrowing (-); general government - ESA 1995 Net lending (+) or net borrowing (-); households and NPISH Net lending (+) or net borrowing (-); corporations Net lending (+) or net borrowing (-); total economy

6 EU/IMF adjustment programme for Portugal Comprehensive action on three fronts Ambitious fiscal consolidation strategy Strengthening financial sector Deep and frontloaded structural reforms Deficit-to-GDP ratio from 10% in 2009 to 3% by 2013 Debt-to-GDP ratio on a downward path as of 2013 Streamlined public finances and administration Gradual and orderly deleveraging Strengthened capitalisation of banks Reinforced bank supervision Labour market Education Product and services markets Network industries Framework conditions (competition, judiciary,..)

7 Outline 1.Background 2.Programme implementation 3.Progress on economic adjustment 4.Debt sustainability and financing 5.Outlook

8 General features Good programme compliance due to full commitment by the government and a broad political and social consensus Efficient organisational structures for programme implementation (MoF, BdP, ESAME) Four positive reviews Technical assistance (EC/IMF, Commission Support Group)

9 Compliance performance 100% 80% 60% 40% 20% 0% 1st review 2nd review 3rd review Observed Ongoing Not observed/delayed

10 Source: DEO Fiscal consolidation (% of GDP)

11 Medium-term strategy of fiscal consolidation Fiscal Strategy Document (DEO) as medium-term budgetary framework Treaty on Stability, Coordination and Governance ( golden rule ) Reinforced framework of economic governance in EU/EA ( 6-pack, 2-pack )

12 Fiscal-structural measures Revised budgetary framework law Arrears strategy Revenue administration reform Public administration reform State-owned enterprises, privatisation, publicprivate partnerships Regional and local government

13 EUR billion % of deposits Financial stability Financial deleveraging, stronger capital buffers, improved supervision Loans and Deposits, Loans Deposits Loan to deposit ratio (rhs) 100

14 Structural reforms Increasing the flexibility of the economy and its capacity to adjust smoothly (e.g. labour market, housing market) More efficient use of resources and incentives for more investment and innovation (e.g. competition framework, revised insolvency law, 'Responsible Industries System, judiciary reform) More fairness and a better sharing of the burden of adjustment (e.g. rents in the network industries as well as in services and regulated professions; labour market reform)

15 Outline 1.Background 2.Programme implementation 3.Progress on economic adjustment 4.Debt sustainability and financing 5.Outlook

16 General considerations To be successful, reforms need to be comprehensive and well synchronised Significant increase in competitiveness and potential for more growth and jobs to be expected Expected shift of production from non-tradable to tradable goods and services Difficult to foresee the exact size and timeline of the impact of the various measures Unavoidable short-term losses in growth and jobs

17 Current account deficit (% of GDP) Net borrowing of the economy from the rest of the world, quarterly, year-on-year Source: National Statistical Institute (INE) national accounts

18 Relative price and cost indicators of Portugal (1995=100)

19 Real GDP (% quarterly y-o-y) Source: National Statistical Institute (INE) national accounts

20 Outline 1.Background 2.Programme implementation 3.Progress on economic adjustment 4.Debt sustainability and financing 5.Outlook

21 Debt sustainability scenarios Different scenarios under variations of assumptions on real GDP growth and interest rates (debt as % of GDP)

22 Financing needs and sources

23

24 Maturing debt

25 Long-term financing (10 year-bonds, on 19 June 2012)

26 Outlook Significant progress in adjustment Four positive programme reviews Important policy challenges ahead: (1) macroeconomic environment (2) reform process (3) return to markets