Front Matter

Front Matter

Author(s):
Dmitry Gershenson, Albert Jaeger, and Subir Lall
Published Date:
March 2016
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    European Deparment

    From Crisis to Convergence

    Charting a Course for Portugal

    Edited by Dmitry Gershenson, Albert Jaeger, and Subir Lall

    European Department

    From Crisis to Convergence: Charting a Course for Portugal

    Edited by: Dmitry Gershenson, Albert Jaeger, and Subir Lall

    Copyright © 2016

    International Monetary Fund

    Cataloging-in-Publication Data

    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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    Acknowledgments

    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.

    Contents

    Acronyms

    ACE

    Allowance for corporate equity

    ALMPs

    Active labor market policies

    CC

    Constitutional Court

    CGA

    Public sector pension scheme

    CIT

    Corporate income tax

    DVA

    Domestic value-added

    EB

    External balance

    EBITDA

    Earnings before interest, taxes, depreciation, and amortization

    EITC

    Earned income tax credit

    ESA

    European System of National and Regional Accounts

    EU

    European Union

    FAD

    Fiscal Affairs Department, IMF

    FDI

    Foreign direct investment

    GDP

    Gross domestic product

    IB

    Internal balance

    IMMS

    Survey on Outgoing Migratory Movements

    INE

    National Institute of Statistics

    ISCED

    International Standard Classification of Education

    LFS

    INE’s Labor Force Survey

    MTBF

    Medium-term budget framework

    NFC

    Nonfinancial corporation

    NPL

    Nonperforming loan

    OECD

    Organisation for Economic Co-operation and Development

    PEC IV

    Fourth Stability and Growth Program for 2011–14

    PER

    In-court debt restructuring framework

    PISA

    Programme for International Student Assessment

    PIT

    Personal income tax

    PPPs

    Public-private partnerships

    R&D

    Research and Development

    ROA

    Return on assets

    SCIE

    Integrated Business Account System

    SGP

    Stability and Growth Pact

    SIREVE

    Out-of-court debt restructuring framework

    SMEs

    Small and medium enterprises

    SOE

    State-owned enterprise

    VAT

    Value-added tax

    Foreword

    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

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