Brussels, 03/04/2012 (Agence Europe) - Thus far, Portugal has respected most of its pledges and is likely to be able to roll over its debt alone in September 2013 without further aid, said the deputy head of the troika of international lenders (the European Commission, ECB and IMF), Peter Weiss, in Brussels on Tuesday 3 April. This will, however, depend on the wider European economy, particularly the situation in Spain, which will need to not deteriorate any more than forecast in order for Portugal to be able to return to the markets. In addition, of course, the money markets will have to trust Lisbon and agree to lend it money at an affordable rate. Weiss said that the Portuguese programme was working very well at the moment but events outside the Portuguese government's control might change that. Portugal needs to stick to its trajectory, warned Weiss.
His comments were made after the third fact-finding mission by the troika last month to examine the reforms required of Portugal in return for international aid of €76 billion, authorised in May 2011. At the end of last month, the troika gave the go-ahead for the payment of a new instalment of aid, €14.9bn (see EUROPE 10563). The IMF is expected to agree on Wednesday to pay another instalment of aid to Portugal.
Thus far, Portugal has fully or partly implemented 110 of the 120 required measures, said Weiss. Although some reforms have not yet borne fruit and some remain to be implemented, such as liberalisation of the service sector and regulated professions, the country is on track, he said, praising the “robust” 2012 budget and ambitious structural adjustments in 2011 and 2012 worth 7.5% of GDP. Portugal's public deficit stood at 4.2% of GDP in 2011. Other positive points mentioned by Weiss include the political and social consensus about the austerity measures, and positive signals on the markets, like the fall in the spread between Portuguese long-term interest rates and Germany's long-term yield rates.
Many challenges remain. As the troika pointed out in February, a series of challenges remain. The economy is deteriorating worse than expected and unemployment is rising. The troika expects Portuguese GDP to shrink by 3.3% this year and the Bank of Portugal is expecting it to shrink by 3.4%. Recent figures suggest that 15% of the working population is unemployed, more than the 14.5% forecast by the Commission in its Spring Economic Forecasts. Weiss could not explain why unemployment had risen so fast.
The gloomy prospects do not mean that the country will not be able to roll over its debt unaided in September 2013, said Weiss, a European Commission official. He admitted, however, that several scenarios were on the cards due to events in other countries that might complicate Portugal's task. If such external events were to arise, eurozone countries have pledged to provide new aid to Portugal if necessary, said Weiss. Another possible scenario that has not been considered, he said, is for the government to decide to delay the first loan repayment (€10bn in September 2013), echoing recent moves by Ireland, which is also in receipt of international aid. In January, Ireland successfully completed the swap of a bond worth €3.53 billion that matured in 2014 with one maturing a year later and agreed to pay a higher interest to finalise the transaction that would give it more time to make the payment. At the time, the Irish bond swap was seen as a market-friendly solution to ease resumption of market access. (SP/MB/transl.fl)