"It's import further to streamline public spending through a comprehensive reform of salaries, pensions and tax reforms," according to an IMF report issued today with forecasts more pessimistic than those of Portugal’s Government.
The IMF has said it before, and is saying it again, Portugal must cut its public spending, and insists on the need to "continue structural reforms" to improve competitiveness.
The March visit by the IMF technical mission welcomed the progress in fiscal consolidation in 2014 and the Government's commitment to bring the deficit below 3%, but called for "more effort" as the IMF forecast for the 2015 deficit remains at over 3%.
The report calls for broad tax reforms to improve public administration and to mitigate the risks of public entities but warns that the current recovery is still too modest to get the economy and employment to pre-crisis levels.
The IMF’s directorate states that a key priority for Portugal is "restore internal balance without undermining the external position" of the country, a good trick if you can do it but way beyond the capability of the current Passos Coelho government which is in pre-election mode and likely to ignore most, if not all the IMF’s recommendations.
The IMF, led by Christine Lagarde, believes that the economic outlook in the short term has "improved significantly in Portugal," but considers that "prospects for the medium term are still clouded by legacy issues" and that Portugal has excessive private and public debt, excessive corporate sector debt and is suffering from a slowdown in the labour market."
The IMF recommends that Portugal takes advantage of low interest rates, the depreciation of the euro and the lower oil price to "address the remaining vulnerabilities, rebuild finances and speed up key structural reforms."
The IMF’s priorities for its sickly patient should be job creation, the promotion of competitiveness and an improvement of public services. There remains a need to improve training and management skills, to reduce disincentives to work and to improve ‘inclusive social dialogue.’
As for the banking system, the IMF warns of growing bad debts and lack of profit in the sector, arguing that "actions are needed to ensure that banks hold capital levels and adequate provisions and accelerate their repayment of debts."
The IMF expects the Portuguese economy to grow 1.6% this year, 1.5% next year and just 1.4% in 2016 and that the unemployment rate will reduced slightly from 13.1% in 2015 to 12.1% in 2017.
The IMF holds firm in its prediction for a 3.2% budget deficit this year despite the government’s assurances of a figure below the magic 3%.
These IMF forecasts overall are more realistic than those of the government which continues to assure the public that all is well, that the economy is in safe hands and come election time, a vote for the continuing Passos Coelho/Paulo Portas coalition is the way to go.