The International Monetary Fund said it agreed to disburse 657.5 million euros to Portugal after reviewing implementation of conditions tied to the country’s loan program.
Formal approval of the seventh review of Portugal’s aid program is expected at a meeting of the 17 euro-area finance ministers on June 20, Portuguese Finance Minister Vitor Gaspar said on May 29. The IMF, in an e-mailed statement today, said it was enabling “immediate disbursement.”
Prime Minister Pedro Passos Coelho is battling rising joblessness and a deepening recession as he cuts spending and raises taxes to meet the terms of the 78 billion-euro ($104 billion) aid plan from the European Union and the IMF. Coelho announced measures on May 3 intended to generate savings of about 4.8 billion euros through 2015 that include reducing the number of state workers.
Portugal had to propose alternative measures to meet budget deficit targets set in the aid program after the country’s Constitutional Court on April 5 blocked a plan to suspend the equivalent of a monthly salary payment to state workers and pensioners this year. The measures blocked by the court represented 1.3 billion euros of savings in 2013, or about 0.8% of the country’s gross domestic product of 164 billion euros.
Economic growth has averaged less than 1% a year for the past decade, placing Portugal among Europe’s weakest performers. The government projects GDP will contract 2.3% this year before growing 0.6% next year. The jobless rate will climb to 18.2% in 2013 and 18.5% in 2014.
The government on March 15 announced less ambitious targets for narrowing its budget deficit as it forecast the economy will shrink twice as much as previously estimated this year. The government targets a deficit equivalent to 5.5% of GDP in 2013, 4% in 2014 and below the EU’s 3% limit in 2015, when it aims for a 2.5% gap. It forecasts debt will peak at 123.7% of GDP in 2014.
Portugal in September had already been given more time to narrow its budget gap after tax revenue missed forecasts.
The EU may consider giving Portugal more time to meet its deficit targets if economic conditions worsen, Jeroen Dijsselbloem, head of the group of euro-area finance ministers, said on May 27. Dijsselbloem said the government hasn’t yet requested another change of timetables and targets.