Programa para Portugal
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Transcript of Programa para Portugal
Portugal Programme Assessment
European Commission, DG ECFIN
15 May, 2014
1
Root causes of Portugal's initial imbalances and need for assistance
Low GDP and productivity for more than a decade
High household, corporate and public debts
Subdued implementation of structural reforms
Deterioration of confidence and rating downgrades provoked rates incompatible with long-term fiscal sustainability
Banking sector lost international market funding and started reliance on the Eurosystem for funding
Macro-economic
imbalances
Trigger for financial
assistance request
2
EU-IMF Economic Adjustment Programme Restoring investor confidence via consolidating public
finances, enabling sustainable growth and safeguarding financial stability
Executing a credible, balanced fiscal consolidation strategy
Rebalancing the economy from non-tradable to tradable sector to improve Portugal's net external position
Further supporting the financial sector through more robust supervision and strengthening bank capitalisation
Implementing an ambitious structural reform agenda to boost potential growth, improve labour market outlook and regain competitiveness
Mitigating negative social impact of the adjustment process
3
Key Programme Achievements
4
Output Recovery Gaining Momentum Real GDP growth projection for 2014 in line with EA
Source: Eurostat, DG ECFIN
-5
-4
-3
-2
-1
0
1
2
3
4
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014f
Portugal EA-18
% change y-o-y
5
Government Bonds at Pre-Crisis Yields
Note: Daily data as of 14 May 2014 Source: Bloomberg
Financing costs have been reduced in recent issuances
0
50
100
150
200
250
France Ireland Spain Italy Slovenia Portugal
Spread 10-year Germany Government Bond
bps
0
2
4
6
8
10
12
14
16
18
20
2007 2008 2009 2010 2011 2012 2013 2014
Portugal 10-year Bond Germany 10-year Bond
in %
6
Transition to Export-Oriented Growth Model
Exports as % of GDP have improved but remain below comparable EU MS
Source: Eurostat; DG ECFIN
20
25
30
35
40
45
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014f
Exports as % of GDP Imports as % of GDP
% of GDP
0
20
40
60
80
100
120
Ireland The
Netherlands
Belgium Austria Portugal
Nominal exports as of 2013
% of GDP
7
Competitiveness Is Recovering
Keeping reforms on track will be crucial to maintain the upward trend
Note: NULC and REER series are inverted Source: DG ECFIN
96
98
100
102
104
106
108
110
112
114
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
NULC EA18 REER 37 Countries
index 2005=100
8
External Adjustment Is Ongoing
Further improvements in the external balance are necessary to reduce NIIP
Source: Eurostat
-140
-120
-100
-80
-60
-40
-20
0
-14
-12
-10
-8
-6
-4
-2
0
2
4
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
Net lending/ Net Borrowing as % of GDP
Net International Investment Position as % of GDP (rhs)
% of GDP
9
Labour Market Has Bottomed Out
High youth and general unemployment remains concerning
Source: Eurostat
15
20
25
30
35
40
45
5
10
15
20
2009 2010 2011 2012 2013 2014
General Unemployment Rate Youth Unemployment Rate (rhs)
% %
10
Fiscal Adjustment Has Been Substantial
Note: For the purposes of the Programme, the budget deficit in 2012 excludes the impact of CGD recapitalisation (about 0.5% of GDP), and in 2013 BANIF recapitalisation (about 0.4% of GDP). Source: Eurostat; DG ECFIN
-12
-10
-8
-6
-4
-2
0
2
4
2009 2010 2011 2012 2013 2014f 2015f
Deficit - Programme purposesStructural balanceStructural primary balance
% of GDP
11
Public Debt High but Sustainable
Source: Eurostat; DG ECFIN
60
70
80
90
100
110
120
130
140
2010 2015 2020 2025 2030Baseline
Shock : -1p.p. GDP growth from 2016
Shock : +1pp GDP growth from 2016
Interest rate shock : +1p.p. from 2016
Combined shock (growth -1 pp, interest +1pp) from 2016
Combined shock (growth +1 pp, interest -1pp) from 2016
% of GDP
12
12
Banks Have Adjusted Significantly
Note: Core Tier 1 ratio according to Programme definition and excluding the banks in resolution Source: Banco de Portugal
60
80
100
120
140
160
180
2009Q4 2010Q4 2011Q4 2012Q4 2013Q4
0
2
4
6
8
10
12
14
Core Tier 1 Ratio (rhs) Loan-to-deposit ratio
% %
13
13
Corporate Sector: Slow Deleveraging and High NPLs
Note: Indebtedness refers to lending and securities other than shares in the domestic banking sector Source: Banco de Portugal; DG ECFIN
0
2
4
6
8
10
12
14
60
70
80
90
100
110
120
130
140
2007 2008 2009 2010 2011 2012 2013
NFCs Indebtedness Total NFCs NPLs (rhs)
% GDP %
14
14
Key Structural Reforms Were Undertaken
Key labour code changes to improve flexibility, reduce segmentation and increase incentives to work
Implementation of strategic plan to fight youth unemployment
Labour market
Comprehensive reform of pre-university education system to increase school autonomy and accountability
Vocational training reforms to enhance labour market matching
Education
New urban lease law to increase access to rental housing and improve labour mobility
New incentives for renovations
Housing market
15
Liberalisation of electricity and gas markets
Several wide-ranging reform packages aimed at reducing excessive rents and cutting the electricity tariff debt
Energy markets
Modernization of regulatory framework, including creation of AMT
Reform package in ports sector to reduce end user costs, including new port labour law and elimination of port use fees
Various cost-saving and liberalisation measures in railways sector
Transport sector
Liberalisation and opening up to competition of telecoms and postal sectors, including privatization of postal services company
Strengthening of regulatory framework for telecoms sector
Telecoms & postal sector
Key Structural Reforms Were Undertaken
16
Simplification of licensing procedures for businesses, moving to a zero authorisation approach
Establishment of Single Point of Contact for entrepreneurs
Introduction of "one-in/one-out" rule for burdensome new regulations
Compilation of inventory and cost analysis of regulations
Business environ-
ment
Services & regulated
professions
Sector-specific amendments to liberalise a wide range of legal regimes governing the services sector
Framework law and new by-laws (in progress) to remove unjustified barriers to entry in key regulated professions
Key Structural Reforms Were Undertaken
17
New Code of Civil Procedure to expedite court process
Court system reform to improve efficiency and accountability
Various measures aimed at speeding up debt enforcement cases
Judicial system
Adoption of new legal framework to strengthen role of key sectorial regulators and Competition Authority and to ensure their independence
Regulatory framework
Key Structural Reforms Were Undertaken
18
Ease of Doing Business Improving
*Note: "Distance to Frontier" measures performance relative to the best performance ever observed for any country. Index values ranges from 0-100, with 100 being the best. Source: World Bank "Doing Business" reports, 2010-2014
"Distance to Frontier*" evolution for selected "Doing Business" indicators (Portugal versus average for other EU countries)
71
72
73
74
75
76
77
2010 2011 2012 2013 2014
Dis
tan
ce
to
Fro
ntie
r (*
)
Overall ease of doing business
PT
EU26 exc. PT
84
86
88
90
92
94
96
98
2010 2011 2012 2013 2014
Dis
tan
ce
to
Fro
ntie
r (*
)
Starting a business
PT
EU26 exc. PT
60
65
70
75
80
85
2010 2011 2012 2013 2014
Dis
tan
ce
to
Fro
ntie
r (*
)
Dealing with construction permits
PT
EU26 exc. PT
19
Much Achieved But Challenges Remain
GDP growth still not robust and unemployment is unacceptably high
High debt levels suggest Portugal could be affected by a turn in bond market sentiment
Corporate sector indebtedness and high NPLs continue to weigh on bank profitability and growth
Concern that reform momentum has slowed in key areas
A continued strong commitment to structural reforms and fiscal consolidation is essential
20