Tuesday

30th Aug 2016

Portugal expected to exit bailout without further loans

  • Portuguese people have taken to the streets against the bailout-related austerity measures (Photo: Pedro Ribeiro Simoes)

Portugal in the coming days is expected to announce its exit from the EU-IMF bailout without further loans to cushion the transition, with the government reaffirming Wednesday (30 April) its commitment to reduce the budget deficit.

After three years of austerity measures linked to the €78 billion rescue, the government said it expects to have room to start reversing public sector salary cuts from 2015, while still sticking to the deficit reduction targets.

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But the salary increase would be subject to the country's economy getting back on track, finance minister Maria Luis Albuquerque said.

"Portugal still spends more than it generates. We have to follow the path, all the Portuguese know all too well the costs of budget indiscipline," she said.

The plan was announced after meetings with the troika of international lenders (European Commission, International Monetary Fund, European Central Bank), who are finalising Portugal's last review under the bailout programme, which ends on 17 May.

Lisbon still has to slash the budget deficit to 4 percent of GDP this year and to 2.5 percent next year, despite its meagre economic recovery and high unemployment rate (15%).

But support for a continuation of the bailout, even in the weaker form of a standby loan, is thin both in the country itself and in donor countries – notably Germany.

Economists are also indicating that Portugal can make it out of the bailout without further help, like Ireland did at the end of last year.

"Portugal is expected to have a clean exit. We have been recommending Portugal for 2014 and so far Portugal has been the star performer," said the Copenhagen-based Danske Bank in a research note.

Last week, Portugal held its first auction for 10-year bonds since it requested a bailout three years ago, raising €750 million at an interest rate considered low (3.6%) compared to the more than 15 percent it had to pay at the peak of the crisis.

Eurozone finance ministers on 5 May are expected to approve Portugal's exit from the bailout with no further assistance.

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