- Dmitry Gershenson, Albert Jaeger, and Subir Lall
- Published Date:
- March 2016
From Crisis to Convergence
Charting a Course for Portugal
Edited by Dmitry Gershenson, Albert Jaeger, and Subir Lall
From Crisis to Convergence: Charting a Course for Portugal
Edited by: Dmitry Gershenson, Albert Jaeger, and Subir Lall
Copyright © 2016
International Monetary Fund
Joint Bank-Fund Library
Names: Gershenson, Dmitriy, editor. | Jaeger, Albert, editor. | Lall, Subir, editor. | International Monetary Fund. | International Monetary Fund. European Department.
Title: From crisis to convergence: charting a course for Portugal / editors: Dmitry Gershenson, Albert Jaeger, Subir Lall.
Other titles: Charting a course for Portugal. | Departmental paper series (International Monetary Fund. European Department)
Description: Washington, DC: International Monetary Fund, 2016. | At head of title: European Department. | Includes bibliographical references.
Identifiers: ISBN 978-1-51359-722-5 (paper)
Subjects: LCSH: Portugal – Economic conditions. | Portugal – Fiscal policy. | Economic stabilization – Portugal.
Classification: LCC HC392.F76 2015
The Departmental Paper Series covers research conducted by IMF staff, particularly on issues of broad regional or cross-country interest. The views expressed in this paper are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.
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The authors are grateful to Mahmood Pradhan, deputy director of the European Department, for his valuable comments and support. We greatly benefited from insightful conversations with many counterparts in the government of Portugal and the Bank of Portugal, and other public and private entities. In particular, we would like to thank João Amador, Cristina Casalinho, José Miguel Costa, Maria Inês Drumond, Pedro Gonçalves, Susana Filipa Lima, Ines Lopes, Bernardo Afonso Maia, Álvaro Matias, Rui Miguel Pinto, and Ana Rangel Gonçalves, Carla Soares, and Susana Videira. Last but not least, we benefited from discussions with IMF colleagues, including Marcos Souto and Constant Verkoren.
This Departmental Paper was edited by Dmitry Gershenson, Albert Jaeger, and Subir Lall, and prepared by a staff team under the overall direction of Subir Lall and led by Albert Jaeger. Contributors are Matthew Gaertner, Irene Yackovlev, and Li Zeng (all EUR), Maximilien Queyranne (FAD), Luciana Juvenal (ICD), Ana Gomes and Elsa Martins (both IMF Office in Portugal), Wolfgang Bergthaler (LEG), Antoine Bouveret (MCM), and Kevin Wiseman (SPR). Federico Diaz Kalan (SPR), Dustin Smith and Jessie Yang (both EUR) contributed to preparation of figures and tables. Daniela Santos (EUR) managed the overall document production and word processing. Departmental Paper series editor Joseph Procopio of the Communications Department’s Editorial and Publications Division oversaw the editing and production of this report, and Andreas Adriano (COM) guided the dissemination and outreach process.
Allowance for corporate equityALMPs
Active labor market policiesCC
Public sector pension schemeCIT
Corporate income taxDVA
Earnings before interest, taxes, depreciation, and amortizationEITC
Earned income tax creditESA
European System of National and Regional AccountsEU
Fiscal Affairs Department, IMFFDI
Foreign direct investmentGDP
Gross domestic productIB
Survey on Outgoing Migratory MovementsINE
National Institute of StatisticsISCED
International Standard Classification of EducationLFS
INE’s Labor Force SurveyMTBF
Medium-term budget frameworkNFC
Organisation for Economic Co-operation and DevelopmentPEC IV
Fourth Stability and Growth Program for 2011–14PER
In-court debt restructuring frameworkPISA
Programme for International Student AssessmentPIT
Personal income taxPPPs
Research and DevelopmentROA
Return on assetsSCIE
Integrated Business Account SystemSGP
Stability and Growth PactSIREVE
Out-of-court debt restructuring frameworkSMEs
Small and medium enterprisesSOE
In 2011, following years of large-scale external imbalance financed by debt, Portugal lost the confidence of its creditors and faced a sudden stop in capital inflows not only to the public sector, but also to banks and corporations. To restore credibility and economic growth, the country embarked on a difficult path of fiscal adjustment and structural reforms.
By many metrics, Portugal’s 2011–14 macroeconomic stabilization program has been a success. Fiscal deficits declined, as revenues rose and spending was constrained, arresting the accumulation of public debt. Exports grew strongly, and the current account began to register surpluses for the first time in decades. Following a sharp contraction in 2011–12, output expanded steadily, and the headline unemployment rate has been decreasing since 2013. As a result, and also benefiting from a supportive monetary policy stance, market access was restored in 2013, with Portugal currently enjoying historically low borrowing costs.
Despite this promising start, the agenda for policymakers is by no means finished. Portugal continues to have high public and private debt, which constrains activity and employment. Medium-term growth prospects are held back by underutilization of labor, low investment, and high nonperforming loans. This paper reviews Portugal’s experience of postcrisis recovery and points to ways to reduce vulnerabilities, absorb labor slack, and generate sustainable growth.
Poul M. Thomsen
Director of the European Department