Por­tu­gal’sec­on­omy on track

The Pak Banker - - Front Page -

WASHINGTON

Staff teams from the Euro­pean Com­mis­sion (EC), Euro­pean Cen­tral Bank (ECB), and In­ter­na­tional Mon­e­tary Fund (IMF) vis­ited Lis­bon dur­ing Novem­ber 12 - 19 for the sixth quar­terly re­view of Por­tu­gal’s eco­nomic pro­gram.

The pro­gram is broadly on track, de­spite stronger head­winds. With much al­ready ac­com­plished, strong com­mit­ment and per­se­ver­ance need to be main­tained as the pro­gram en­ters its sec­ond half. Ex­ter­nal and fis­cal ad­just­ment con­tin­ues to ad­vance, ad­e­quate cap­i­tal and liq­uid­ity buf­fers have re­duced fi­nan­cial sta­bil­ity risks, and struc­tural re­forms are pro­ceed­ing apace. At the same time, ris­ing un­em­ploy­ment, lower in­comes, and un­cer­tainty are weigh­ing on con­fi­dence, while the re­ces­sion in the euro area is be­gin­ning to bear on ex­port dy­nam­ics. Given fi­nanc­ing con­straints and high debts, the pro­gram ad­e­quately bal­ances the need to ad­just, against the un­avoid­able costs of ad­just­ment for eco­nomic ac­tiv­ity and jobs. While down­side risks to growth are sig­nif­i­cant, the pro­gram’s macroe­co­nomic frame­work re­mains ap­pro­pri­ate. Re­cent data have been mixed, although they con­tinue to sup­port the pro­gram sce­nario. Af­ter a 3 per­cent de­cline in 2012, real GDP in 2013 is pro­jected to de­cline by 1 per­cent but should grad­u­ally re­turn to pos­i­tive quar­terly growth rates dur­ing the year, with an­nual GDP in 2014 ex­pected to grow by 0.8 per­cent. The ex­ter­nal cur­rent ac­count deficit is pro­jected to im­prove fur­ther to be­low 1 per­cent of GDP in 2013. Fis­cal con­sol­i­da­tion ef­forts are in line with the re­vised deficit tar­gets for 2012 and 2013. Rev­enue col­lec­tion has been some­what weaker than en­vis­aged in re­cent months, but this was off­set by tight spend­ing ex­e­cu­tion. The government re­mains com­mit­ted to achiev­ing the deficit tar­get of 5 per­cent of GDP in 2012 and a deficit of 4.5 per­cent of GDP in 2013. Go­ing for­ward, the mis­sion sup­ports the au­thor­i­ties’ in­ten­tion to re­bal­ance the ad­just­ment ef­fort to­ward per­ma­nent re­duc­tions in ex­pen­di­ture. An ex­pen­di­ture re­view is un­der­way. Re­sults will be dis­cussed dur­ing the sev­enth re­view, in­clud­ing mea­sures to ad­dress po­ten­tial im­ple­men­ta­tion risks in 2013.

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