IMF Cautions Portugal On Debt

The International Monetary Fund (IMF) released a report on February 22 that cautioned the Portuguese government about the country’s public and private debt. The report also included the IMF’s projections for Portugal’s economy up until 2021, as well as advice on macroeconomic policy for the Portuguese government.

In 2011, Portugal borrowed €12.6 billion from the IMF during the eurozone crisis that also saw bailout packages given to Ireland and Greece. The loan’s purpose was to balance the state’s budget after decades of government overspending. The IMF’s loan to Portugal was part of a larger bailout package with the European Union that has amounted to €78 billion in the three years following the loan disbursement.

Countries that borrow from the IMF are subject to a long Post Program Monitoring (PPM) process, in which the IMF continuously evaluates and advises on the country’s economic framework and policies, to “correct macroeconomic imbalances.”

In the IMF’s PPM report, they commended Portugal’s “welcomed upturn” in economic growth in the third quarter of 2016. However, it still shared concerns with Portugal’s debt, which could expose the Portuguese government to potential changes in repayment financing conditions. Despite the IMF’s confidence in Portugal’s ability to repay the loans, it stressed “the risk of faster upward pressure on borrowing costs” in an uncertain economic climate. In November, the Portuguese Finance Ministry revealed two early repayments made to the IMF by the Portuguese government. These early repayments will save Portugal €41 million on interest payments over the next two years, as they were originally scheduled for September 2018 and February 2019. The IMF report also pointed out that over 40 percent of the original IMF loan to Portugal has been repaid. While signs of good faith on the loan are important, Portugal will need to aptly deal with state finances to garner favorable financial sentiments from the IMF. Otherwise, repayment financing terms may change, which would lead to a rise in total borrowing costs on the loan for Portugal.