The European Stability Mechanism (ESM) warns in its annual report that Portugal must pursue prudent fiscal policies in the light of its high public debt, with particular caution with promotions and salary increases in the civil service.
The warnings of the euro zone's permanent redemption fund are set out in the 2018 annual report presented by the director of the mechanism, Klaus Regling, and today approved by the MEE Board of Governors, led by Eurogroup President Mario Centeno on the occasion of his seventh annual meeting in Luxembourg.
In the chapter on Portugal, the report concludes that "the continued assessment of Portugal's repayment capacity (of loans) suggests that there are no risks related to the repayment of the remaining amount of the European Financial Stability Facility (EFSF) loan" ( the predecessor of the MEE, who participated in the 'rescue' to the country between 2011 and 2014).
But he warned that the country's high public debt "remains a major vulnerability and its downward trajectory remains fragile due to weak growth, fiscal fatigue and aging populations."
"Structural reforms and prudent fiscal policies should therefore be pursued in order to promote long-term growth and increase resistance to shocks. The impact of expansionary policies, such as the reinstatement of promotions of civil servants and their salary increases, or increases in the minimum wage, should be carefully monitored, "advises the European Stability Mechanism.
The ESM also warns that "despite a consistent downward trajectory, the high level of bad credit in the banking sector and poor profitability represent the biggest challenges facing the banking sector."
In more general terms, the report notes that "the Portuguese economy has continued to grow, with some slowdown", attributed mainly to external factors, and warns that "trade disputes and Brexit" may have a "necessarily negative" impact on future economic developments ".
Underlining the deficit reduction trajectory (which was 0.5% of the Gross Domestic Product, below the 0.7% target), the report also welcomes "positive developments in the labor market", with unemployment stabilizing in the 6.6% at the end of 2018.
"In addition, budgetary performance and favorable market access enabled Portugal to repay its loan from the International Monetary Fund (IMF) in advance," states the report, noting that "Portugal has also committed itself to an early repayment of the loan from the EFSF of two billion euros between 2020 and 2023, conditioned to market conditions and the impact on debt sustainability ", to be evaluated at the time.