PORTUGAL - IGCP, E.P.E. - IGCP€¦ · …buoyed by strong gains in exports’market share 2....

October 15, 2019

PORTUGAL

ECONOMICS & STATE FUNDING

Outline

2

1.

1. Economic revitalization

2. Stronger growth foundations

3. Private sector turnaround

4. Fiscal stabilization

5. Resilient public debt structure

6. Improving market conditions

1.


Clear economic revitalization, underpinned by structural reforms

Source: Eurostat

[Real GDP, YoY %]

Unemployment below pre-crisis level

[% labor force]

Source: Eurostat

Robust GDP growth, above 2% in 2018

3

7,4

9,5

6,2

13,8

0

5

10

15

20

25

30

Euro Area Italy Portugal Spain

1,9%

2,4%

2,4%

0,8%

-6%

-4%

-2%

0%

2%

4%

6%

2002 2004 2006 2008 2010 2012 2014 2016 2018

Euro area Portugal Spain Italy


Stronger GDP growth (1/2)

[GDP YoY % and pp] [Contributions to YoY real private consumption growth, %]

Source: Statistics Portugal Source: Statistics Portugal

4

Sustainable domestic and external demand Improved confidence backs steady private consumption

1,9

-12

-10

-8

-6

-4

-2

0

2

4

6

8

10

Private consumption Public consumption GFCF

Change in inventories Exports Imports

GDP

2,2

-8

-6

-4

-2

0

2

4

Final consumption expenditure of NPISH Non-durable goods and services

Durable goods Food and beverage products

Private Consumption


Stronger GDP growth (2/2)

Robust exports growth … … supported by a shift in investment pattern

[Contributions to YoY real Exports growth, %] [Contributions to YoY real GFCF growth, %]


5

1,5

-20

-15

-10

-5

0

5

10

15

Exports of services

Exports of mineral products

Exports of goods excluding mineral products

Exports of goods and services

7,7

-24

-20

-16

-12

-8

-4

0

4

8

12

16

Other machinery and equipment Transport equipment

Construction Others

Gross fixed capital formation

Labor market supported by growth and reforms

Broad-based job creation

[% of total population] [Contributions to YoY employment growth, %]

6


Both employment and participation rates are up


[% of total population]

44

46

48

50

52

54

56

57,0

57,5

58,0

58,5

59,0

59,5

60,0Participation rate (% >Y15 population) (LHS)

Employment rate (%) - (> Y15) (RHS)

0,9

-6

-5

-4

-3

-2

-1

0

1

2

3

4

5

2013Q2 2014Q2 2015Q2 2016Q2 2017Q2 2018Q2 2019Q2

ServicesMining, manufacturing, electricity, gas and constructionAgriculture, forestry and fishingYoY employment growth

Inflation in Portugal remains below that of the Euro Area

Portugal’s inflation has been highly volatile… … and not so much in the Euro Area.

[Contributions to yoy HICP growth, %]

Source: Eurostat Source: Eurostat

7


[Contributions to yoy HICP growth, %]

HICP average (2018)1,2%

HICP average (2018)1,7%


Steady growth cycle based on balanced growth and employment creation

Main indicators for the Portuguese economy

Sources: Statistics Portugal, Ministry of Finance, Banco de Portugal, International Monetary Fund and European Commission 8

[YoY, %, unless otherwise stated]

2015 2016 2017 2018 2019 P 2020 P 2019 P 2020 P 2021 P 2022 P 2023 P 2019 P 2019 P 2020 P 2019 P 2020 P

Real GDP (yoy%) 1,8 2,0 3,5 2,4 1,9 2,0 1,9 1,9 2,0 2,0 2,1 2,0 1,9 1,6 1,7 1,7

Private Consumption 2,0 2,6 2,1 3,1 2,2 2,1 1,8 1,8 2,0 1,9 1,9 2,3 - - 2,3 1,9

Public Consumption 0,8 0,8 0,2 0,9 0,9 0,9 0,2 0,6 0,5 0,5 0,5 0,5 - - 0,8 0,5

GFCF 5,9 2,5 11,5 5,8 8,2 5,0 5,3 4,9 4,5 4,5 4,5 7,2 - - 4,6 5,0

Exports 6,3 4,4 8,4 3,8 2,9 3,9 3,8 3,8 3,7 3,9 3,9 2,3 4,0 4,0 3,2 3,5

Imports 8,0 5,0 8,1 5,8 5,4 4,1 3,9 3,9 3,9 3,9 3,9 4,6 5,9 5,5 4,9 4,6

Contributions to GDP growth (pp)

Domestic demand 2,4 2,2 3,3 3,2 3,0 2,0 2,1 2,1 2,2 2,2 2,2 - - 2,4 2,2

Net exports -0,5 -0,2 0,2 -0,8 -1,0 -0,1 -0,2 -0,2 -0,2 -0,1 -0,1 - - -0,7 -0,5

External sector (% GDP)

Current account 0,0 0,6 1,0 0,1 - - -0,8 -0,7 -0,3 -0,6 -0,6 - -0,6 -0,7 -1,0 -1,1

of which Goods and Services 0,7 1,1 1,0 0,1 -1,0 -1,0 0,2 0,2 0,2 0,2 0,2 -0,7 - - -0,5 -0,9

Current and Capital account 1,2 1,5 1,8 1,2 0,3 0,4 0,4 0,5 1,0 0,6 0,6 0,5 - - 0,0 0,1

Unemployment (% labor force) 12,4 11,1 8,9 7,0 6,3 5,9 6,6 6,3 5,9 5,6 5,4 6,4 6,1 5,6 6,2 5,7

Prices (yoy%)

GDP deflator 2,0 1,7 1,5 1,6 1,3 1,4 1,5 1,5 1,6 1,5 1,5 - 1,3 1,5 1,4 1,6

HICP (a) 0,5 0,6 1,6 1,2 0,8 1,6 1,3 1,4 1,5 1,4 1,5 0,4 0,9 1,2 1,1 1,6

(a) CPI for State Budget and Stability Programme Projections.

(b) The values from Statistics Portugal are based on the new 2016 benchmark year for National Accounts. Projections from other institutions are based on the previous 2011 benchmark year for National Accounts unless stated

otherwise

(c) The Draft Budgetary Plan for 2020 refers to a no-policy change scenario, following the general election of 6 October.

(d) Projections are based on the new 2016 benchmark year for National Accounts.

(e) EC Summer (Interim) forecast, July 2019: GDP yoy unchanged (1,7% / 1,7%); HICP revised downwards (0,9% / 1,5%).

Macroeconomic Scenario

Statistics Portugal (b)

Oct-2019 (d)

Min Fin:

2019 Stability Programme

International

Monetary Fund

Oct-2019 (d)

Banco de

Portugal

Apr-2019

European

Commission

May-2019 (e)

Min Fin:

DBP 2020 (c)

Oct-2019 (d)

Outline

9

1.







2.

Economic structure better adapted for sustainable recovery cycle, as exportsnow weigh more than 40% of GDP

GDP composition (current prices) GVA composition (current prices)

[% of GDP] [% of GVA]


10


-33 -39 -36 -38 -40 -43

27 28 27 3041 44

65 63 6466

66 65

17 19 2121

18 1724

29 23 2116 18

1995 2000 2005 2010 2015 2018

Gross fixed capitalformation

Generalgovernmentconsumption

Privateconsumption

Exports

Imports

5 4 3 2 2 2

1918

15 14 14 14

33

33 4 4

78

76 4 4

1919

1818 20 20

78

88

8 8

1413

15 1718 17

27 29 31 31 30 30

1995 2000 2005 2010 2015 2018

Other services activities

Financial, insurance and realestate activities

Transportation and storage;information andcommunication

Wholesale and retail trade,repair of motor vehicles andmotorcycles; accommodationand food service activitiesConstruction

Energy, water supply andsewerage

Industry

Agriculture, forestry andfishing


Strong reversal of external imbalances based on structural dynamics…

From chronic external deficits to balance New composition of current and capital accounts

[% GDP] [12-month cumulative Current and Capital Account, EUR million]

11

Source: Eurostat Source: Banco de Portugal

-32.000

-24.000

-16.000

-8.000

0

8.000

16.000

24.000

Primary Income Secondary Income

Capital account Goods

Services Current and capital accounts

20

25

30

35

40

45

-12

-10

-8

-6

-4

-2

0

2

4

Imports of goods and services (rhs) Exports of goods and services (rhs)

External balance of goods and services

…buoyed by strong gains in exports’ market share


12

Significant gains in exports’ market share

[Index 2007Q1=100]

Source: OECD

[Labour cost index vs. Germany, 2001Q1=100]

Significant competitiveness gains since 2011

Source: Eurostat

85

90

95

100

105

110

115

120

2001Q2 2004Q2 2007Q2 2010Q2 2013Q2 2016Q2 2019Q2

Euro area (19 countries) Germany

Portugal Spain

Italy

80

90

100

110

120

130

Germany Italy Portugal Spain

Exports diversification improves resilience to external shocks

Broader sectoral diversification

[Goods exports by sector, %]

Source: Statistics Portugal

13



Geographical diversification sustaining exports growth

[Goods exports by destination, YoY 3mMA %]

4 4

6

7

3 45

65

19

14

20

5

78

12

8

4 3 4

6

10

12

15

5

7 8

12

8

3 3 35

9

14 14

Ch

em

ical

s (i

ncl

. Ph

arm

a.)

Pla

stic

s an

d R

ub

be

r

Bas

e M

eta

ls

Fish

, Fru

its,

Ve

g.,T

ob

aco

an

d W

ine

Min

era

l Pro

du

cts

Ce

me

nt,

Cer

amic

an

d G

lass

Wo

od

an

d C

ork

Foo

twar

e an

d o

ther

pro

du

cts

Pu

lp o

f W

oo

d a

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Pap

er

Text

ile P

rod

uct

s

Ve

hic

les

and

par

ts, A

ircr

aft

Elec

. an

d M

ec. M

ach

iner

y

2000 2010 2018

-3,6

-10

-5

0

5

10

15

20

25

Germany Spain France

UK Others Intra-EU US

Africa Others Extra-EU Exports

Increase in services exports’ weight led by tourism receipts

Weight of exports of services doubled since 2005 Greater diversity of countries of origin in tourism

[% GDP] [% of non-resident overnight stays by country of origin]

Source: Banco de Portugal Source: Statistics Portugal

14


3,9

%

4,0

%

4,4

%

4,1

%

4,5

%

4,5

%

4,3

%

4,0

%

4,1

%

3,9

%

4,0

%

4,2

%

4,2

%

3,9

%

4,2

%

4,6

%

5,1

%

5,4

%

6,0

%

6,4

%

6,8

% 7,8

%

8,2

%

7,0

%

7,2

%

7,7

%

7,3

% 7,9

%

7,8

%

7,6

%

7,4

%

7,8

%

7,7

%

8,8

% 9,6

%

9,9

%

9,2

%

9,6

%

11

,0% 11

,9% 13

,0%

13

,5%

14

,0%

14

,3% 15

,6%

16

,0%

19

96

19

97

19

98

19

99

20

00

20

01

20

02

20

03

20

04

20

05

20

06

20

07

20

08

20

09

20

10

20

11

20

12

20

13

20

14

20

15

20

16

20

17

20

18

0%

2%

4%

6%

8%

10%

12%

14%

16%

18%

Tourism and Travel Transportation Others Total Services

30,9%

23,3% 23,3% 22,9% 20,8% 19,6% 19,2%

16,3%

13,9% 14,1% 13,8%14,2%

13,3% 11,6%

11,4%

13,9% 10,7% 10,4%9,3%

10,3%11,1%

4,7%

6,9%10,0% 10,5%

9,6% 9,8% 9,8%

7,0%

7,8% 6,3% 6,4%

5,8% 5,4%5,0%

1,7%

3,5% 3,8% 3,9%

5,2% 5,5% 5,8%

3,0%3,7% 3,1% 3,1%

3,3% 3,4% 3,6%

2,4%2,4% 2,9% 3,1%

3,8% 4,7% 5,2%

22,5% 24,6% 25,8% 25,7% 27,6% 28,1% 28,6%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

2005 2010 2015 2016 2017 2018 Jan-Aug

UK Germany Spain France Netherlands Brazil Italy USA Others

30

50

70

90

110

130

GFCF in construction Total GFCF exc. Construction

Strong fixed investment growth despite subdued GFCF in construction

Construction gradually recovering

[GFCF in construction and excluding construction, 100=2000Q1]


15


Capacity utilization levels imply stronger investment

[Capacity utilization in manufacturing and NFC GFCF as % of GDP]

7%

8%

9%

10%

11%

12%

13%

14%

15%

16%

70%

72%

74%

76%

78%

80%

82%

84%

86%

88%

90%

Capacity utilization (%, LHS) NFC GFCF (% of GDP, RHS)

Healthy acceleration of fixed investment

Increase in fixed investment despite debt reduction…

[NFC debt and NFC fixed investment as % of GDP]

Source: Statistics Portugal, ECB Source: Statistics Portugal

16


…while NFC savings rate remains well above pre-crisis

[NFC savings and investment as a % of GVA]

8%

9%

10%

11%

12%

13%

14%

15%

16%

75%

90%

105%

120%

135%

150%

165%

180%

195%

Jun

/01

Jun

/03

Jun

/05

Jun

/07

Jun

/09

Jun

/11

Jun

/13

Jun

/15

Jun

/17

Jun

/19

NFC debt/GDP (LHS) NFC Fixed investment % GDP (RHS)

5%

10%

15%

20%

25%

30%

35%

NFC - Investment rate NFC - Savings rate

Improved profitability and credit allocation

NFC profitability levels are being restored

[Return on equity and Fixed investment as a % of GVA]


17


Stabilization of loans to NFCs, with an upward trend in the food and accommodation sector[Loans to NFC, Index 100 = Jan 2008]

Source: Banco de Portugal

16%

18%

20%

22%

24%

26%

28%

30%

32%

34%

-4%

-2%

0%

2%

4%

6%

8%

10%

12%

14%

NFC - Return on equity NFC - Fixed investment (% of value added, RHS)

Outline

18

1.







3.

229.3%

229.2%

180%

200%

220%

240%

260%

280%

300%

320%

Portugal Euro area


Improved profitability and balance sheet strengthening

19

[Net lending (+)/ Net borrowing (-) in % of GDP]

Consistent net lending positions…

[Private sector debt/GDP]

… leading to private sector deleveraging

Source: Statistics Portugal Source: ECB

Lowest since 2002Q4

-77.1 pp

0,4

-4,0

3,2

0,21,0

-14

-12

-10

-8

-6

-4

-2

0

2

4

6

Total economy Non financialcorporations

Financialcorporations

Generalgovernment

Households

2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 Q2

Households’ net financial position improving

Net worth is now above pre-crisis levels … … driven by deleveraging

[EUR billion]

Source: Banco de Portugal Source: ECB

20


[Debt/GDP; Non-consolidated; Nominal values]

Strengthening of corporates’ capital structure

Strong decline of debt stock

[Debt/GDP; Non-consolidated]

Source: ECB Source: Banco de Portugal

21


Improved solvency position

[Capital ratio = Equity/Assets]


Deleveraging process results in declining loan stock and diminished new lendingoperations

Total loans declined sharply since 2011… …while new lending operations remain subdued

[Total loans to households and NFC, billion €] [New lending operations to households and NFC, billion €]

Source: Banco de Portugal Source: Banco de Portugal

22

0

2.000

4.000

6.000

8.000

10.000

12.000

Jul/

03

Jul/

04

Jul/

05

Jul/

06

Jul/

07

Jul/

08

Jul/

09

Jul/

10

Jul/

11

Jul/

12

Jul/

13

Jul/

14

Jul/

15

Jul/

16

Jul/

17

Jul/

18

Jul/

19

Households (mortgage + consumption) NFC Total

150,7

135,1

122,6

111,8

102,1

96,1 95,592,5

88,9

2010 2011 2012 2013 2014 2015 2016 2017 2018


De-risking of the banks’ capital structure …

23

[Loans to Deposits Ratio, %]

More stable funding structure

[Core tier 1 | Common Equity tier 1, %]

Higher capital levels in a challenging context

Source: Banco de PortugalSource: Banco de Portugal

7,4

8,7

11,512,2

11,3

12,4

11,4

13,913,2

2010 2011 2012 2013 2014 2015 2016 2017 2018

13,4 12,3 13,3 12,3

Total Capital Ratio

12,69,810,3

(*) Since Jan-2014 is in effect a new, transitory, regime of own funds adequacy, which takes into account Basel III phase-in arrangements.

15,2 15,2

… with increased resilience of major Portuguese banks

24

• The 2nd stage of CGD’s recapitalization was concluded inMar-17, with issuance of € 0.5bn of subordinated bondsand State capital injection of € 2.5bn.

CGD

• NB bought back senior bonds maturing between 2019and 2052, ensuring a capital increase of € 500mn.

• A 75% stake in NB was sold to Lone Star, resulting in animmediate capital injection of € 750 mn (and anadditional € 250mn by the end of 2017). The ResolutionFund retains 25% of the capital.

• The Resolution Fund made the following payments to NBunder the CCA: € 792mn in 2018; € 1,149 mn in 2019.

Novo Banco

BCP

• Capital increase of € 1.33bn finalized in Feb-2017, whichallowed the reimbursement of the remaining € 700mn ofCoCos

• Following the capital increase, Fosun share reached 23.5%

BPI• The removal of the voting rights limit opened the door for

a successful public offer by CaixaBank, finalized in Feb-2017, which increased its share to over 84.5%.

EUR million 2016 2017 2018 2019H1

Net income -1.859,5 51,9 496 417,5 +115,1%

Net interestincome

1.197,3 1.241,4 1.204,8 579,9 -2,5%

EUR million 2016 2017 2018 2019H1

Net income -788,3 -2.298.0 -1.412,6 -400,1 -289%

Net interestincome

529,1 403,7 454,3 262,5 +18,7%

EUR million 2016 2017 2018 2019H1

Net income 23,9 186,4 301,1 169,8 +12,7%

Net interestincome

1.237,8 1.391,0 1.423,6 740,7 +7.6%

EUR million 2016 2017 2018 2019H1

Net income 313,2 10,2 490,6 134,5 -63,2%

Net interestincome

372,2 388,1 422,6 263,0 +26,1%

Source: BPI, CGD, Novo Banco and BCP

2. Structural transformation

∆ 2018H1

∆ 2018H1

∆ 2018H1

∆ 2018H1

Banks dealing with legacy assets

NPL ratio is receding …

[% of gross credit; at end of period]

25


… as is the overdue credit ratio despite lower total loans

[Overdue credit ratio, YoY change in pp and contributions]

Source: Banco de Portugal

Prudentialsupervisory action

NPL management

Legal and judicial reform

National

authorities’

3-pillar strategy

to reduce NPLs:

[+ EU-level action]

7,2 7,

4

7,2

7,1

7,0

6,7

6,5

6,2

5,7

5,3

4,9

4,6

3,7

3,5

3,2

19

,2 20

,0

19

,0

18

,4

16

,2

15

,5

15

,0

14

,5

13

,1

12

,5

12

,6

11

,6

10

,6

9,8

8,9

28

,3 29

,3 30

,3

30

,1

29

,5

28

,9

27

,5

26

,6

25

,2

23

,8

22

,3

22

,1

18

,5

17

,6

16

,6

17,5 17,9 17,9 17,617,2

16,315,4 14,4

13,312,7

11,7 11,3

9,4 8,98,3

0

5

10

15

20

25

30

35

2015 Q4 2016 Q2 2016 Q4 2017 Q2 2017 Q4 2018 Q2 2018 Q4 2019 Q2

Housing Consumption Non-financial corporations Total

Outline

26

1.







4.

EC

projections

121.5

30

40

50

60

70

80

90

100

110

120

130

140

Euro area Italy Portugal Spain

EC

projections


Fiscal discipline has stabilized debt levels throughout economic and politicalcycles

27

[% of GDP]

Strong primary surplus …

[EDP gross debt, % of GDP]

… supporting public debt decline

Source: European Commission, May 2019 Source: European Commission, May 2019

Portugal

3.0

Portugal

-10

-8

-6

-4

-2

0

2

4

6

2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020

Euro area Spain Italy Portugal

Stability Program projections(Apr-2019)

38%

40%

42%

44%

46%

48%

50%

52%

-12%

-10%

-8%

-6%

-4%

-2%

0%

2%

2010 2012 2014 2016 2018 2020 P 2022 P

Total revenue (RHS)

Total expenditure excl NB, Banif and CGD (RHS)

Overall balance excl NB, Banif and CGD


Source: Statistics Portugal and Ministry of Finance Source: Statistics Portugal and Ministry of Finance

28

Lowest deficits in over 40 years

Structural adjustment

[% GDP][Total revenue, total spending and overall balance; % GDP]

Significant reduction of expenditure

-11,2%

-8,9%

-7,4%

-6,1%-5,7%

-3,4%

-4,8%

-2,9%

-7,2%

-1,6%

-4,4%

-2,2%-2,0% -2,0%

-3,0%

-1,2%

-0,5%-0,1%

Overall Balance Structural Overall Balance

2010 2011 2012 2013 2014 2015 2016

2017 2018 2019 P 2020 P 2021 P 2022 P 2023 P

Note: NB, Banif and CGD impacts occur in 2014, 2015, 2017, 2018, 2019, 2020, 2021.

Fiscal consolidation through a strong improvement of the primary surplus anddeclining interest costs

General Government Accounts

[% GDP]

Source: Statistics Portugal and

Ministry of Finance 29


Notes: Figures for 2010-2018 reflect the new series of the Portuguese National Accounts (benchmark year 2016), as published by Statistics Portugal from 23September 2019. Estimates for 2019-2023 refer to the Stability Programme scenario for General Government Accounts (April 2019) and do not incorporatethe revised series for National Accounts. In the Draft Budgetary Plan for 2020 (no-policy change scenario, incorporating the new series for NationalAccounts), the overall balance is projected at -0.1% of GDP in 2019 and 0.0% of GDP in 2020.

(% GDP) 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 P 2020 P 2021 P 2022 P 2023 P

Total revenue 40,5% 42,4% 42,7% 44,8% 44,4% 43,8% 42,9% 42,4% 43,0% 43,8% 43,7% 43,9% 43,2% 43,0%

Current revenue 39,4% 41,5% 41,1% 44,0% 43,7% 43,0% 42,3% 42,0% 42,6% 43,2% 43,1% 42,9% 42,7% 42,5%

Current taxes on income and wealth 8,4% 9,4% 8,9% 11,3% 10,9% 10,7% 10,1% 9,9% 10,1% 10,2% 10,1% 10,0% 10,0% 9,9%

Taxes on production and imports 13,2% 13,8% 13,8% 13,7% 14,2% 14,6% 14,7% 14,9% 15,2% 15,3% 15,2% 15,2% 15,1% 15,0%

Social contributions 11,9% 12,0% 11,4% 12,0% 11,8% 11,6% 11,6% 11,6% 11,7% 11,9% 12,0% 12,0% 12,0% 12,0%

Other revenue 5,9% 6,2% 7,0% 7,0% 6,8% 6,2% 5,9% 5,7% 5,6% 5,8% 5,7% 5,7% 5,6% 5,6%

Capital revenue 1,1% 0,9% 1,6% 0,9% 0,7% 0,8% 0,6% 0,4% 0,4% 0,6% 0,6% 1,0% 0,5% 0,5%

Total expenditure excl CGD 51,9% 50,0% 48,9% 49,9% 51,7% 48,2% 44,8% 43,4% 43,5% 43,9% 43,4% 43,0% 42,6% 42,4%

Current expenditure 44,7% 45,7% 45,3% 46,7% 45,6% 44,0% 42,8% 41,0% 40,4% 40,7% 40,3% 39,8% 39,5% 39,3%

Social benefits 18,8% 19,2% 19,8% 20,6% 19,9% 19,5% 19,0% 18,4% 18,2% 18,3% 18,3% 18,2% 18,1% 18,0%

Compensation of employees 13,7% 12,8% 11,7% 12,5% 11,8% 11,3% 11,2% 10,9% 10,7% 10,8% 10,7% 10,6% 10,5% 10,4%

Interest (EDP) 2,9% 4,3% 4,9% 4,8% 4,9% 4,6% 4,1% 3,8% 3,4% 3,3% 3,0% 2,9% 2,7% 2,7%

Intermediate consumption 5,9% 6,0% 5,7% 5,6% 5,7% 5,6% 5,5% 5,4% 5,4% 5,4% 5,4% 5,4% 5,4% 5,4%

Subsidies 0,7% 0,7% 0,6% 0,6% 0,7% 0,6% 0,5% 0,4% 0,4% 0,4% 0,4% 0,4% 0,4% 0,4%

Other current expenditure 2,6% 2,7% 2,6% 2,6% 2,6% 2,4% 2,4% 2,1% 2,3% 2,5% 2,5% 2,5% 2,5% 2,5%

Capital expenditure excl CGD 7,2% 4,4% 3,6% 3,2% 6,1% 4,3% 2,0% 2,3% 3,1% 3,2% 3,1% 3,2% 3,1% 3,1%

Gross fixed capital formation 5,3% 3,5% 2,5% 2,2% 2,0% 2,3% 1,5% 1,8% 1,9% 2,1% 2,3% 2,5% 2,6% 2,6%

Other capital expenditure excl CGD 1,8% 0,9% 1,0% 0,9% 4,1% 1,9% 0,4% 0,6% 1,2% 1,1% 0,7% 0,6% 0,5% 0,5%

Overall balance excl CGD -11,4% -7,7% -6,2% -5,1% -7,4% -4,4% -1,9% -0,9% -0,4% -0,2% 0,3% 0,9% 0,7% 0,7%

Memo items

Primary expenditure excl CGD 49,0% 45,7% 44,0% 45,1% 46,9% 43,7% 40,6% 39,6% 40,1% 40,7% 40,3% 40,2% 39,9% 39,7%

Primary balance excl CGD -8,5% -3,3% -1,3% -0,3% -2,5% 0,1% 2,3% 2,8% 2,9% 3,1% 3,3% 3,8% 3,4% 3,4%

Overall balance -11,4% -7,7% -6,2% -5,1% -7,4% -4,4% -1,9% -3,0% -0,4% -0,2% 0,3% 0,9% 0,7% 0,7%

Primary balance -8,5% -3,3% -1,3% -0,3% -2,5% 0,1% 2,3% 0,8% 2,9% 3,1% 3,3% 3,8% 3,4% 3,4%

General Government Account (accrual basis)

Stability Program projections(Apr-2019)

101,0

114,3 116,5 118,3 118,6 117,2114,6 113,2

110,6107,1

102,898,7

94,8

10,4

11,912,5

12,3 10,1 12,0

10,28,2

8,0

8,1

6,2

4,9

4,8

111,4

126,2129,0

130,6128,8 129,2

124,8

121,5

118,6

115,2

109,0

103,7

99,6

2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023

GenGov deposits

GenGov debt net of GenGov deposits

GenGov gross debt

Public debt to decline

Public debt downward trend …

[Maastricht debt, % GDP]

30

Decomposition of public debt dynamics[pp GDP]

… is supported by strong primary surpluses and decreasing interest costs


Assumptions for public debt dynamics

YEAR 2017 2018 2019 P 2020-23 P

Real growth rate (yoy%) 2.8 2.1 1.9 2.0

GDP deflator (yoy%) 1.5 1.4 1.5 1.5

Overall balance (%GDP) -3.0 -0.5 -0.2 0.6

Primary balance (%GDP) 0.9 3.0 3.1 3.5

Interest costs (%GDP) 3.8 3.5 3.3 2.8

YEAR 2017 2018 2019 P 2020-23 P

Maastricht debt (% GDP) 124.8 121.5 118.6 99.6

Change (pp GDP) -4.5 -3.3 -2.9 -19.0

Primary balance effect -0.9 -3.0 -3.1 -13.8

Snowball effect -1.6 -0.9 -0.7 -4.0

Interest costs 3.8 3.5 3.3 11.3

Nominal GDP -5.4 -4.3 -4.0 -15.3

Other stock-flow adjustments -2.0 0.6 1.0 -1.2

Source: Ministry of Finance

Notes: Since the Stability Program was published in April 2019, the Maastricht debt series underwent two statistical revisions: (i) in August, Banco dePortugal published a revised debt series to reflect the addition of the amounts associated with capitalized interest on saving certificates to public debt,following the new edition of the Manual on Government and Debt published by Eurostat; (ii) in September, Statistics Portugal published a full revision ofGeneral Government’s main aggregates in a new series of the Portuguese National Accounts (benchmark year 2016), in full consistency with Portugal’s 2ndnotification for 2019 under the Excessive Deficit Procedure. According to the latest data, the end-2018 debt-to-GDP ratio stood at 122.2% - this represents anoverall decrease of 10.7 percentage points since the peak recorded in 2014 (132.9%).

Outline

31

1.







5.


A significant improvement in the debt structure is a key source of resilience

32

One of the longest average maturities …

[Years]

Source: IGCP

… with a declining implicit interest rate

[%]

Source: IGCP

4,5

5,8

4,24,4

3,7

2,7 2,82,6

1,8

1,3

3,5

4,13,9

3,6 3,63,4 3,2

3,02,8

0

1

2

3

4

5

6

7

2010 2011 2012 2013 2014 2015 2016 2017 2018 jan - ago2019

Cost of Issuance per year

Cost of Debt Outstanding

5,3 5,1

5,5

6,7 6,5 6,4 6,2 6,5

6,9

8,2 8,28,8

8,8,1

7,87,3

4,0

3,0

6,0

9,6

12,1

8,8

7,8

11,0

0

1

2

3

4

5

6

7

8

9

10

11

12

13

Average residual maturity excl EU-IMF loans

Average residual maturity

Average maturity of MLT debt issuance in each year

2017 2018 2019 P 2020 P 2021 P 2022 P 2023 P

State borrowing requirements 28,3 20,3 19,8 13,2 18,0 18,3 15,6

Net financing needs 10,4 7,3 10,0 5,2 4,2 3,3 3,2

Overall deficit (a) 4,8 3,7 4,4 1,8 0,9 1,8 2,1

Net acquisitions of financial assets (b) 5,2 3,7 5,6 3,5 3,3 1,5 1,1

One-off operations (c) 0,4

MLT Redemptions 17,9 13,0 9,7 8,0 13,8 15,0 12,4

Tbonds (PGB + MTN) (d) 7,9 7,5 7,7 8,0 10,3 11,0 12,4

FRN/OTRV 3,5 3,5

EU/IMF (executed) 10,0 5,5

EU/IMF (to be executed) 2,0 0,5

State financing sources 28,3 20,3 19,8 13,2 18,0 18,3 15,6

Use of deposits 0,4 0,5 2,5 0,1 0,7 1,6 0,0

Financing in the year 27,9 19,9 17,3 13,2 17,2 16,8 15,6

Executed 27,9 19,9 13,3

Tbonds (PGB + MTN) 15,1 16,4 14,5

FRN/OTRV 3,5 1,0

Retail debt (net) 2,8 1,3

Tbills (net) 0,3 -1,8 -1,2

Other flows (net) (e) 6,2 2,9

To be executed 4,0 13,2 17,2 16,8 15,6

Tbonds (PGB + MTN) 0,8

FRN/OTRV

Retail debt (net) 1,0

Tbills (net) -0,1

Other flows (net) (e) 2,2

State Treasury cash position at year-end (f) 9,8 9,3 6,8 6,8 6,0 4,5 4,5

(f) Excluding cash-collateral.

(a) State sub-sector cash deficit in 2017-19. Projection for GG deficit (adjusted) in 2020-23 (Stability Programme, Apr 2019).(b) Includes refinancing of other public entities (namely SOEs), as well as the direct capitalization of CGD and redemption of CoCos in 2017, and credit lines to the Single Resolution

Board and the National Resolution Fund.(c) Includes other operations that impact net financing needs (e.g. bank recapitalization in 2012-2013, privatization revenues)(d) Includes net impact of exchange offers.(e) Includes centralization of funds of other public entities in the Single Treasury Account.

Prudent and stable funding plan

State’s borrowing needs and sources 2017-2023

[EUR billion]

33


Source: IGCPand Ministry

of Finance

Regular issuance of MLT debt through different channels and across the curve

Auctions regain the main role in the annual funding plan Supporting liquidity in different points of the curve

[MLT debt issuance per method of issuance; EUR billion] [MLT debt issuance per bucket; EUR billion]

Source: IGCP Source: IGCP

34


12% 41%

45%

48%47%

25%

15%

37%

29%

77%

47%

20%

36%

45%

55%

47%

51%

100%

55%

9%

17%

5% 14%

10%

21%

11%

12%

23%8%

16%

17%5%

0

5

10

15

20

25

2010 2011 2012 2013 2014 2015 2016 2017 2018 jan-ago2019

Syndications Auctions Exchanges MTN Issuance OTRV/FRN

21%51% 100%

22%

2%

25%

41% 53%

22%

9%

35%

44%

21%

8%

15%26%

10%

7%

7%

10%

38%

8%

25%

46%

46%

48%45%

52%

74%

7%

17%

19% 8%2%

19%

16%

0

5

10

15

20

25

2010 2011 2012 2013 2014 2015 2016 2017 2018 jan-ago2019

<4[ [4-6[ [6-9[ [9-13[ >=13

The diversification of investors ensures a stable base of debt holders (1/2)

Progressively regaining traditional investors

Source: IGCP

35

Distribution by Geography Distribution by Investor Type


[Distribution by geography and investor type of 10-year syndications from 2010 to 2019]

2010

2013 2019

Asia

France

Germany/Austria/Switzerland

Nordics

North America

Other

Other EU

Portugal

Spain

UK

2010

2013

2019

Asset Managers Asset Managers

Banks Banks

Official Institutions OfficialInstitutions

Hedge Funds Hedge Funds

Insurance / Pension FundsInsurance / Pension Funds

Others Others

[% of total State debt securities]


36


More diversified public debt composition

[EUR billion and % of total State debt]

Non-domestic holdings in line with EU peers

The diversification of investors ensures a stable base of debt holders (2/2)

25

35

45

55

65

75

85

Portugal Spain Italy

69%69%

70% 59%48% 45% 43%

46% 47% 49% 51% 52%

4%

6%

6%6%

11%

13%

13% 7%9% 9% 7%

7%6%

6%6% 6%

15%

13%

11%7%

6% 6% 8%9%

10%11%

12% 12%

21%32%

35%36%

32%

29%24%

21% 21%

118133

152

175

194

204217

226236 238

246 247

0

40

80

120

160

200

240

280

Dec/08 Dec/09 Dec/10 Dec/11 Dec/12 Dec/13 Dec/14 Dec/15 Dec/16 Dec/17 Dec/18 Aug/19

Outra não transacionável / Other non-tradable PAEF / EU-IMF

Retalho / Retail Outros CP / Other ST

BT / Tbills Outros MLP / Other MLT

OT / PGB TOTAL

37

Liability management operations have smoothed the redemption profile

[Redemption calendar debt; August-2019+ rollover EFSM; EUR billion]

Source: IGCP

Maturity profile spread over a long time span


IGCP is actively buying back off-the-run PGBs

The IMF loan has been fully repaid

[PGB buybacks, 2018 and 2019]

[Repurchases of IMF loan]

SecurityOutright buyback

(EUR million)Exchange

(EUR million)OT Jun 2019 778 -OT Jun 2020 - 1,036OT Apr 2021 100 870OT Oct 2023 - -341OT Apr 2027 -1,565

TOTAL 2018 878 -

Source: IGCP

Date SDR million EUR million2015 6,579 8,4482016 3,560 4,4962017 8,232 10,0132018 4,571 5,515

TOTAL 22,942 28,472

OT Jun 2020 - 958OT Apr 2021 - 2,462OT Oct 2022 - 350OT Oct 2023 - -350OT Jul 2026 - -1,063OT Apr 2027 - -560OT Oct 2028 - -1,178OT Feb 2030 - -619

TOTAL 2019 - -

0

3

6

9

12

15

18

21

2019 2023 2027 2031 2035 2039 2043 2047

Tbills

EFSF

EFSM

EFSM (final maturity to be confirmed)

Other medium and long term debt

Outline

38

1.







6.


Sizable decline in funding costs and in risk premium

Portuguese yields declined sharply in all maturities… …prompting a convergence with other EA issuers

[Secondary market yields, %] [10-yr secondary market yields, %]

Source: Bloomberg Source: Bloomberg

39

-100

0

100

200

300

400

500

Oct-16 Apr-17 Oct-17 Apr-18 Oct-18 Apr-19 Oct-19

Portugal Italy Spain France Germany

-100

0

100

200

300

400

500

Oct-16 Apr-17 Oct-17 Apr-18 Oct-18 Apr-19 Oct-19

2y 5y 10y 30y


From November on, ECB will resume its monthly net purchases of public sector securities, whilecontinuing to reinvest the principal payments from maturing securities held in the PSPP portfolio

ECB PGB purchases under PSPP

[EUR billion]

Source: ECB

40

-60

-30

0

30

60

90

120

-1,2

-0,6

0,0

0,6

1,2

1,8

2,4

PSPP purchases with capital key PSPP actual purchases PSPP reinvestments (net) Target APP Purchases (RHS)

Rei

nve

stm

en

t P

has

e

0

500

1.000

1.500

2.000

2.500

Jan

-15

Ap

r-1

5

Jul-

15

Oct

-15

Jan

-16

Ap

r-1

6

Jul-

16

Oct

-16

Jan

-17

Ap

r-1

7

Jul-

17

Oct

-17

Jan

-18

Ap

r-1

8

Jul-

18

Oct

-18

Jan

-19

Ap

r-1

9

Jul-

19

Over-the-counter OT Platforms OT OT 12M Moving Average


Average daily turnover stabilized and bid-offer spreads improved significantly

Average daily turnover stabilized… … while bid-offer spreads improved significantly

[EUR million] [price ticks; 1M moving average]


41

0

20

40

60

80

100

120

140

160

Feb

/15

May

/15

Au

g/1

5

No

v/1

5

Feb

/16

May

/16

Au

g/1

6

No

v/1

6

Feb

/17

May

/17

Au

g/1

7

No

v/1

7

Feb

/18

May

/18

Au

g/1

8

No

v/1

8

Feb

/19

May

/19

Au

g/1

9

10Y 5Y


Fund managers have reengaged with the PGB market since early 2017…

Net flows of end-investors by investors’ type

[EUR million; Cumulative net flows of end-investors (excl PDs) since Dec-2015]

Source: HRF Reports

42

-6.000

-4.000

-2.000

0

2.000

4.000

6.000

8.000

10.000

12.000

dez/15 mar/16 jun/16 set/16 dez/16 mar/17 jun/17 set/17 dez/17 mar/18 jun/18 set/18 dez/18 mar/19 jun/19

Banks Central Bank & Other Public Entity Pension Fund Insurance Company Fund Manager Hedge Fund Retail

…as did the UK market, while other EU net flows have been positive since mid-2017

43

Net flows of end-investors by region (top 5)

[EUR million; Cumulative net flows of end-investors (excl PDs) since Dec-15] [EUR million; Cumulative net flows of end-investors (excl PDs) since Dec-15]

Net flows of end-investors by region


Source: HRF Reports

-4.000

-3.000

-2.000

-1.000

0

1.000

2.000

3.000

4.000

5.000

6.000

7.000

dez

/15

mar

/16

jun

/16

set/

16

dez

/16

mar

/17

jun

/17

set/

17

dez

/17

mar

/18

jun

/18

set/

18

dez

/18

mar

/19

jun

/19

Spain Other EU France Portugal UK

-3.000

-2.000

-1.000

0

1.000

2.000

3.000

4.000

dez

/15

mar

/16

jun

/16

set/

16

dez

/16

mar

/17

jun

/17

set/

17

dez

/17

mar

/18

jun

/18

set/

18

dez

/18

mar

/19

jun

/19

Germany/Austria/Swit North AmericaAsia BeneluxOther Nordics


Rating upgrades unravel a new paradigm, as Portugal reenters main benchmarkindexes

Interest rates and sovereign rating Recent and upcoming rating decisions

[%; notches above investment grade (AAA=10); inverted scale] [Announced rating calendar for 2019]

Source: European Commission, Fitch, Moody’s e S&P Source: S&P, Fitch, Moody’s and DBRS

44

DBRSBBB high / Sta

FitchBBB / Pos.

Moody’sBaa3 / Pos.

S&PBBB / Pos.

Nov-2019

22/11

Appendix

45

A. Macroeconomic indicators

B. Structural reforms

C. Fiscal indicators

Positive medium and long-term trend in soft and hard data economic indicators,despite some recent volatility and deceleration

Coincident indicators and real GDP Retail sales and Industrial production

[yoy %] [3 month average, YoY%]

Source: Banco de Portugal, Statistics Portugal Source: Statistics Portugal

46


-8,0

-6,0

-4,0

-2,0

0,0

2,0

4,0

GDP (YoY, %)

Monthly coincident indicator for economic activity

Monthly coincident indicator for private consumption-14%

-12%

-10%

-8%

-6%

-4%

-2%

0%

2%

4%

6%

8%

Industrial Production Retail Sales

Both headline and core inflation in Portugal are below that of the Euro Area

HICP Core HICP

[Year-on-year growth, %] [Year-on-year growth; %]


47


0,9

-0,3

-3,0

-2,0

-1,0

0,0

1,0

2,0

3,0

4,0

5,0

Diff Euro area (19 countries) Portugal

1,0

0,0

-3,0

-2,0

-1,0

0,0

1,0

2,0

3,0

Diff Euro area (19 countries) Portugal


Broad economic recovery

Most sectors have now closed the gap vs. Jun-2011

[Employment change vs. level in Jun-2011, thousands]


48

[GVA YoY% and pp]

Cross-cut recovery in sectoral terms

-5%

-4%

-3%

-2%

-1%

0%

1%

2%

3%

4%

5%

Manufacturing Wholesale and retail trade

Construction Other sectors

GVA

83

,6

81

,4

61

,5

58

,6

48

,6

38

,4

30

,2

28

,7

28

,1

25

,4

22

,7

20

,5

18

,5

10

,9

8,6

-2,6

-3,6

-3,9

-21

,8

-139

,6

-227

,9

(Net

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Act

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100%-10,7%

-8,0%

-7,7%

-7,4%

-5,4%

-4,2%-4,2%

-3,6%-2,2%

-1,6% -1,1% 44%

Dec

-08

Man

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Dec

-12

Fixed investment bounced back in almost all sectors, after a widespreadcontraction between 2008-2012

NFC investment declined sharply until 2012… … and has shown signs of broad recovery ever since

[GFCF; current prices; 100=2008] [GFCF; current prices; 100=2008]

Source: Statistics Portugal 49


44% -1,4%0,3% 0,7%

77%

1,2% 1,5%2,2% 2,9%

3,8%

4,8%

6,6%

9,8%

Dec

-12

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Dec

-17

Revamp in real estate based on a less debt-driven demand

Prices reflect the increase in demand Market is starting to show some overvaluation in PT

[Current prices; 100=2015; M€] [Average valuation of residential property vs. equilibrium]

Source: ECB50



Un

de

rval

ue

dO

verv

alu

ed

-20

-18

-16

-14

-12

-10

-8

-6

-4

-2

0

2

4

6

8

10

12

14

Portugal Euro Area

1 000

2 000

3 000

4 000

5 000

6 000

7 000

-15

-10

-5

0

5

10

15

20

10

Q2

20

10

Q4

20

11

Q2

20

11

Q4

20

12

Q2

20

12

Q4

20

13

Q2

20

13

Q4

20

14

Q2

20

14

Q4

20

15

Q2

20

15

Q4

20

16

Q2

20

16

Q4

20

17

Q2

20

17

Q4

20

18

Q2

20

18

Q4

20

19

Q2

New home sales Existing home sales

Home price index_total (YoY, %) Home price index_existing (YoY, %)

Home price index_new (YoY, %)


Improving net external debt position

Balanced external position … … leading to gradual improvement in NIIP

[Current account, % GDP: 4QMA] [Net International Investment Position, % GDP]

51


Well diversified exports distribution, with limited sectoral or geographicalconcentration

Portuguese goods exports by major destination and sector

[% total exports by destination and sector; YTD Jan-Aug 2019]


52


Others WORLD

Vehicles and parts, Aircraft 3,63 2,81 2,99 1,23 0,12 1,21 0,34 0,31 0,05 0,29 3,08 16,1

Elec. and Mec. Machinery 2,40 1,39 3,23 1,01 0,47 0,40 0,29 0,25 0,55 0,24 3,44 13,7

Textile Products 2,78 1,16 0,76 0,67 0,58 0,54 0,39 0,17 0,07 0,08 1,82 9,0

Base Metals 2,70 1,34 0,52 0,48 0,36 0,08 0,17 0,16 0,22 0,06 1,60 7,7

Mineral products 1,29 0,30 0,06 0,09 1,34 0,04 0,51 0,29 0,03 0,00 3,30 7,3

Plastics and Rubber 2,19 0,90 0,82 0,35 0,30 0,27 0,44 0,22 0,12 0,11 1,45 7,2

Prep. Food, Beverages and

Tobaco1,11 0,34 0,60 0,32 0,34 0,24 0,23 0,30 0,23 0,06 1,79 5,6

Chemicals (incl. Pharma.) 1,57 0,66 0,18 0,35 0,23 0,55 0,13 0,14 0,20 0,08 1,42 5,5

Pulp of Wood and Paper 1,07 0,49 0,42 0,26 0,21 0,25 0,28 0,05 0,07 0,14 1,35 4,6

Footware 0,32 0,74 0,59 0,19 0,16 0,09 0,47 0,07 0,02 0,04 0,70 3,4

Others 5,65 2,96 1,86 1,04 1,07 0,92 0,73 0,39 0,49 0,26 4,69 20,0

TOTAL 24,7 13,1 12,0 6,0 5,2 4,6 4,0 2,3 2,1 1,4 24,6 100

Exports growth based on geographical and sectoral contributors

Major sector and country contributions

[YoY % and contributions, YTD Jan-Aug 2019]


53


Italy France Germany Netherlands United StatesUnited Kingdom Spain Brazil Angola Others WORLD

Vehicles and parts, AircraftV

e0,34% 0,34% 0,57% 0,11% -0,11% 0,20% 0,49% -0,02% -0,01% 0,39% 2,29%

Optical / medical / precision

instr.

O

p0,01% 0,02% 0,34% 0,01% 0,05% 0,02% -0,01% 0,00% -0,01% 0,13% 0,56%

Vegetable ProductsV

e0,02% 0,09% 0,03% 0,05% 0,00% 0,00% 0,00% 0,01% -0,01% 0,02% 0,23%

Prep. Food, Beverages and

Tobaco

P

r0,13% 0,02% -0,01% 0,00% 0,03% 0,03% -0,01% -0,01% -0,07% 0,05% 0,16%

Manufactured ProductsM

i0,00% 0,06% 0,07% 0,01% 0,01% -0,02% 0,00% 0,00% -0,03% -0,05% 0,04%

Animal ProductsL

i-0,02% 0,00% 0,00% -0,04% -0,01% 0,00% 0,05% 0,02% -0,06% 0,04% -0,01%

Plastics and RubberP

l-0,02% 0,02% -0,09% 0,03% 0,07% -0,04% -0,01% -0,03% -0,04% 0,06% -0,04%

Textile ProductsT

e0,00% 0,01% -0,03% 0,00% 0,05% -0,01% -0,13% 0,00% 0,00% 0,01% -0,10%

Base MetalsB

a-0,01% 0,06% -0,09% 0,00% 0,09% -0,02% -0,17% -0,01% -0,01% 0,02% -0,14%

FootwareF

o-0,01% -0,04% -0,08% -0,04% 0,03% -0,02% -0,02% 0,00% -0,01% -0,06% -0,24%

Mineral productsM

i-0,05% 0,08% -0,02% 0,04% -0,29% -0,01% -0,91% -0,10% -0,01% -0,36% -1,63%

Others 0,24% -0,06% -0,10% 0,03% 0,06% -0,16% 0,65% -0,01% -0,24% 0,55% 0,97%

TOTAL Total 0,64% 0,60% 0,59% 0,21% -0,01% -0,03% -0,07% -0,15% -0,49% 0,80% 2,09%

Productivity gains leading to higher competitiveness

Labor productivity: positive medium-term trend ULC: down from a relatively modest competitive position

[2010 = 100] [2001 Q1 = 100; 12m MA]

Source: Eurostat Source: ECB

54


90

100

110

120

130

140

150

Spain Italy Portugal Euro Area

90

92

94

96

98

100

102

104

106

108

110

Euro area (19 countries) Spain Italy Portugal

Appendix

55


B. Structural indicators


Structural reforms key to sustain a balanced growth environment

56

What has been achieved: Underway:


• Improved efficiency of credit allocation by banks

• Resolution Fund: State loan extended for up to 30y, with maturity contingent on final outstanding amount (after NB sale)

Financial sector

• Social Security reform

• Improved effectiveness: reduction of civil servants (-10% since 2011) and SOEs restructuring

• Simplified tax compliance + reduced fraud and fiscal evasion

• New Budgetary Framework Law

• Privatization program

• Judicial system reform

Public sector

• Reduced firms’ administrative burden (e.g. licensing)

• Lower costs of context (e.g. communications, railways, ports)

• Rental market reform

Product market

• Reduced severance payments and unemployment benefits

• More flexible working arrangements

Labor market

• Program Capitalizar: promote reduction of indebtedness levels and increase capital holdings

• Initiative Indústria 4.0: designed to revitalize most traditional sectors (agroindustry, auto, fashion, retail and tourism)

• Program Semente: new fiscal framework to promote Start Up investment

Corporate sector

• Program Simplex+: improve efficient use of public resourcesand simplify administrative burden

• Spending review focused on: (i) health and education sectors; (ii) procurement; (iii) real estate; and (iv) SOEs

• Automatic income declaration for Personal Income Tax

Public sector

• NPLs: working group preparing measures to facilitate debt restructuring, including fiscal treatment of write-offs

• Improve efficiency of insolvency and debt restructuring frameworks

Financial sector


Labor market reforms

57

(1) Unemployment benefit has been extended to certain self employed categories (+80% of wage needs to come from one employer )

Unemployment Benefits

Capped at:

26 months (38 months before)

2.5x IAS (3xIAS before) with 10% reduction after 6 months

Min. contribution period 12 months (15 before)

Extension to self employed (1)

Reduce risk of long term unemployment

Encourage earlier return to labor market

Reduce contribution period that gives access unemployment

insurance

Severance Payment

12 days/year for new contracts;

18 days/year (old contracts first 3 years)

(30/36 days before)

Cap: 12 months

Improve efficiency and eliminate labor market duality

Working time Arrangements

Introduction of individual bank of hours, capped at 150 hours (vs. 200

before);

Collective bank of hours

Vacations up to 22 (vs 25 days )

Increase flexibility in production cycle;

Improve productivity;

Improve production capacity adjustment to peak periods

without increasing personnel costs


Hiring and firing is now easier and less costly

Source: World Economic Forum Source: World Economic Forum

58

Hiring and firing practices

[Index scale from 1 to7 (best)]

Redundancy costs[Cost of advance notice requirements, severance payments, and penalties due when terminating a redundant worker, expressed in weekly wages]

1

2

3

4

5

ITA FRA IRL GRC PRT GER ESP

2018 2008

0

10

20

30

40

50

60

70

80

90

100

ITA FRA IRL GRC PRT GER ESP

2018 2008

Appendix

59


B. Structural reforms


The overall balance of the GG on a cash basis stood at EUR -2,083 million in2018, improving by EUR 475 million vis-à-vis 2017

General Government (GG) balance

[EUR million; yoy change]

60


2018 budget execution (on cash basis)

General Government total revenue on cash basis General Government total expenditure on cash basis

[%, pp] [%, pp]


61Execution in 2018 2018 Budget target


Main contributions(p.p.) Main contributions (p.p.)

Up to August, the overall balance of the GG on a cash basis stood at EUR +402 million,improving by EUR 982 million vis-à-vis the same period last year

General Government (GG) balance

[EUR million; yoy change]

62


Source: Ministry of FinanceNote: 2018 annual balance updated with final data from Budget General Directorate.

7511.032

1.279

786

1.573

2.117 2.239

982

24

1.542 1.301883

-1.259-637

-536 -445

402

-2.217

791269

-395

-2.045 -2.210

-2.653 -2.684

-579

-2.241

0

2.000

4.000

6.000

8.000

10.000

-10.000

-8.000

-6.000

-4.000

-2.000

0

2.000

Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec 2019Target

yoy change (RHS) 2019 2018

2019 budget execution: January to August

General Government total revenue on cash basis General Government total expenditure on cash basis

[%, pp] [%, pp]


63Execution in 2019 2019 Budget target


Main contributions (p.p.) Main contributions (p.p.)

Note: 2018 GG account updated with final data from Budget General Directorate.

164 158 154 149 147 147 149 157 159

13 12 12 11 10 10 10 11 11

551530 510 497

503

507 510 516 521

728700

675656 659 664 669 684 690

Regional and Local Government Social Security Fund Central Government General Government

-5.1%

The number of civil servants declined by about 5% since Dec-11, putting a lid oncurrent expenditure

Number of civil servants[thousands]

Source: DGAEP

64



Average implicit interest rate anchored in historically low level, given therelatively long average maturity

Average maturity around 8 yearsDeclining implicit interest rate on State direct debt

[State direct debt after swaps; May-2019][%; Interest costs in t / Average debt stock at the end of t-1 and t]

Source: IGCP

Source: IGCP

65

EntityAmount

disbursed (EUR bn)

Estimated all in cost

Final average maturity from disbursement date (years)

EFSM 24.1 2.6% 19.5

EFSF 26.0 1.7% 20.8

Average cost of EU loans[Estimates; May-2019]

Outstanding (EUR bn)

Current average residual maturity

(years)

Final average residual maturity

(years)

EU 51.6 11.1 13.1

Other debt 199.9 6.3 6.3

Total 251.5 7.3 7.7

2017 2018 2019 P 2020 P 2021 P 2022 P 2023 P

PGB 3.9% 3.5% 3.3% 2.9% 2.8% 2.9% 2.9%

Tbills -0.1% -0.3% -0.3% -0.2% 0.1% 0.3% 0.6%

Retail debt 2.8% 2.9% 2.7% 2.6% 2.5% 2.2% 2.3%

EU/IMF 2.5% 2.3% 2.2% 2.4% 2.2% 1.8% 1.7%

Total 3.0% 2.8% 2.7% 2.5% 2.4% 2.4% 2.4%

Source: IGCP

Web site: www.igcp.ptBloomberg pages: IGCPReuters pages: IGCP01

66

Disclaimer

The information and opinions contained in this presentation have been compiled or arrived at from sources believed to be reliable and ingood faith, but no representation or warranty, express or implied, is made as to their accuracy, completeness or correctness.

All opinions and estimates contained in this document are published for the assistance of recipients, but are not to be relied upon asauthoritative or taken in substitution for the exercise of judgment by a recipient and, therefore, do not form the basis of any contract orcommitment whatsoever.

IGCP does not accept any liability whatsoever for any direct or consequential loss arising from any use of this document or its contents.

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