Portugal passed the third review by the European Union and IMF of its 78-billion-euro bailout programme on Tuesday and the country's finance minister said it would not end up needing a second rescue like Greece. The lenders said Portugal's economic slump will deepen this year, however, and urged more reform efforts.
Inspectors recommended the bailout's next tranche of 14.9 billion euros be paid after finding Portugal had met fiscal goals and launched reforms to make the economy more competitive. "The program is on track, but challenges remain," the EU, European Central Bank and International Monetary Fund said in a joint statement. "Policies are generally being implemented as planned and economic adjustment is underway."
"Nevertheless, more efforts are needed to clear Portugal's structural reform backlog in the network and sheltered services sectors," the document said, also calling on the government to step up the pace of reforms already being implemented. Portuguese Finance Minister Vitor Gaspar said his country would not be seeking more funding beyond the current bailout. "We will not ask for more time or money," Gaspar said, adding there was no discussion of that during the IMF/EU team's evaluation of the economy. "There will be no signal coming from the government other than meeting the terms of the programme."
Greece was forced to seek a second bailout after failing to mend its finances with initial aid. Gaspar did change the government's outlook for this year's economic slump - the deepest since the 1970s - to a contraction of 3.3 percent from a previously forecast 3 percent decline.
He also said unemployment, which is already at record highs, would worsen this year. The jobless rate will now reach 14.5 percent, up from the government's previous estimate of 13.7 percent. Portugal's centre-right government has raced ahead with reforms of the uncompetitive economy in recent weeks, especially of its rigid labour market, in an effort to win approval from creditors and ensure the country can ride out its debt crisis. European officials have also been eager to distance the euro zone's second most risky country from troubled Greece.
"Most of the adjustment is expected for 2011 and 2012, and the economy should start expanding again from next year," EU Economic and Monetary Affairs Commissioner Olli Rehn said in a statement on Tuesday, referring to Portugal's reform efforts. But many economists say the country may have to seek more emergency funding or even be forced to restructure its debts like Athens.