The International Monetary Fund may never be satisfied and today warned that for Portugal "there is a real risk that the target budget deficit of 2.7% of GDP will not be met without further cuts in spending," adding that it is unlikely that Portugal’s austerity measures can be eased without containing spending on wages and pensions.
The statement follows the second post-Troika visit and highlights that which the government already knows but will not attempt due to the Autumn elections.
The performance of state revenues in the first four months of the year, "continues the uncertainty" and the IMF now thinks that whatever is achieved during the rest of the year will not be enough for Portugal to hit its targets.
The Troika technical mission estimates the deficit will be 3.2% of GDP yet Passos Coelho and his Minister of Finance have stuck to a probably unachievable lower figure.
The IMF, led by the formidable Christine Lagarde, stated that Portugal’s economic programme to 2019, set "ambitious goals for reducing debt" but that the programme fails to specify the measures needed to achieve these goals and that the growth assumptions are a tad optimistic.
Despite recent highly publicised early repayments to the IMF which have served to improved the structure of Portugal’s public debt, the "medium-term financing needs remain considerable" and Portugal's bond rates have been creeping up with ten year paper hitting an uncomfortable 3%.
The IMF at least believes that the recent rebound in Portugal's exports and in investment "may suggest that a structural transformation of the economy is starting, which can promote further growth in the medium term" but it reiterated that "these developments have to accelerate in coming quarters."
To improve growth prospects, the recipe is the same as it always has been, the "continued implementation of structural reforms."
The IMF mission reported that "it is essential to ensure that statutory changes are accompanied by results on the ground to reduce structural bottlenecks to growth."
Recent privatisations were at least given the thumbs up, as was the miniscule reduction in natural gas prices for consumers, but reforms to improve the efficiency of public services continue to be avoided by the Passos Coelho government whcih needs to sack thousands of public employees but realises that they then are unlikely to vote for the coalition.
The IMF report pays no regard to the political reality in Portugal with a government hesitant now to do anything that will upset voters and stalling on the harsher actions that are needed to reform the economy.
This easing off may have come too late and be a critical misreading of the population’s mood as lower pensions, higher costs, higher taxes, more and higher fines, high unemployment, and a government that increasingly has become intolerant of its citizens may shift waves of voters back to the shores of a socialist government.
For IMF report summary, see: http://www.imf.org/external/np/ms/2015/061215.htm
