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Portugal

Assisted Countries

Current economic situation

Portugal's economic growth moderated to 2.3% in 2023 due to tighter financial conditions and weak external demand. Inflation decelerated significantly. The general government budget recorded a surplus, supported by robust revenues. Public debt continued to decline significantly. Market access remained favourable, despite high sovereign bond yields. Portuguese banks’ profitability soared as interest rates rose and credit quality remained fair. Despite good market access conditions, low productivity growth and an ageing population pose challenges to debt sustainability. Implementing Portugal’s recovery and resilience plan and a commitment to prudent fiscal policies remain crucial to ensure resilience and fiscal sustainability.

Highlights

Programme overview

Years
European Stability Mechanism
2011-2014
Lenders
European Financial Stability Facility
€26 bn
European Commission (via its lending arm, the European Financial Stabilisation Mechanism)
€24.3 bn
International Monetary Fund
€26 bn

PROGRAMME TIMELINE FOR PORTUGAL

2011

Programme
May 2011

Financial assistance package approved for Portugal

Jun 2011

EFSF disburses first loan tranche

Jan 2013

Portugal returns to bond market

Apr 2013

Average loan maturity extended to 21 from 14 years

May 2014

Conclusion of EFSF programme

Portugal returns to economic growth after 4 years

2012

2013

2014

ESM programme outcomes

Economic adjustment and reforms

Portugal suffered from low GDP and productivity growth during the 2000s. Its competitiveness was undermined by rising labour costs and structural problems and led to persistent external imbalances. Public spending grew much faster than economic output, and both public and private debt levels rose in an environment of easy credit conditions. In early 2011, rising yields on Portugal’s sovereign bonds threatened the country’s ability to finance its government debt. Portugal requested financial assistance from the EU, the euro area and the IMF in April 2011.

The financial assistance package was tied to an economic adjustment programme, which included:

- A fiscal consolidation strategy, supported by structural and fiscal measures;
- Structural reforms to boost potential growth, create jobs, and improve competitiveness;
- Stabilisation of the financial sector through recapitalisation and deleveraging.

Thanks to the implementation of these reforms and measures, Portugal was able to return to market financing. A two-digit current account deficit was erased, the budget deficit shrank; GDP growth resumed in 2014 and continued until the Covid-19 crisis led to economic contraction across all of Europe in 2020.
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After the programme

Following the completion of the programme in 2014, post-programme surveillance (PPS) has been carried out by the European Commission in liaison with the European Central Bank. The procedure involves regular review missions in the programme country to assess its economic, fiscal and financial situation. The ESM participates in PPS missions to fulfil the requirements of its Early Warning System, i.e. to assess a country’s capacity to repay its outstanding loans.

Portugal completed the early repayment of its IMF loans in December 2018. In September 2019, Portugal made an early repayment of €2 billion to the EFSF.

ESM country team coordinator for
Portugal: Pilar Castrillo
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Details of EFSF financial assistance for Portugal

Date of disbursementAmount disbursedCumulative amount disbursedInitial final maturityRevised final maturity
22.06.2011€3.7 billion€3.7 billion05.07.202101.07.2036
29.06.11€2.2 billion€5.9 billion05.12.201603.12.2025
20.12.11€1 billion€6.9 billion23.08.2025no change
12.01.12€1.7 billion€8.6 billion04.02.201530.01.2035
19.01.12€1 billion€9.6 billion19.07.202618.07.2027
30.05.12€3.5 billion€13.1 billion30.05.203230.05.2032
30.05.12€1.7 billion€14.8 billion30.05.203230.05.2035
17.07.12€1.5 billion€16.3 billion17.07.203817.07.2038
17.07.12€1.1 billion€17.4 billion17.07.203817.07.2040
03.12.12€0.8 billion€18.2 billion03.12.202803.12.2028
07.02.13€0.8 billion€19 billion07.02.202207.02.2026
27.06.13€1.05 billion€20.05 billionn.a.27.06.2033
27.06.13€1.05 billion€21.1 billionn.a.27.06.2034
22.11.13€3.7 billion€24.8 billionn.a.22.11.2033
28.04.14€1.2 billion€26 billionn.a.28.04.2038

Weighted average maturity of loans: 20.8 years

Loan repayments

Date of repaymentAmount repaidDetails
17/10/2019€2 billionEarly repayment (voluntary)

Related documents

Legal documents

Review documents published by the European Commission

Explainer

Thanks to the implementation of reforms, Portugal has been successful in improving public finances, reinforcing the financial sector and bringing the economy back on a path of recovery. Portugal returned to economic growth in 2014 after four years of recession (1.4% in 2016, 1.8% predicted in 2017). Fiscal adjustment has been significant, with Portugal’s public deficit dropping from over 10% in 2009 to 1.8% (predicted) in 2017.

Portugal returned to bond markets in May 2013, when it issued a 10-year bond with a yield of 5.67%. This shows that investors had quickly regained confidence in the Portuguese economy, as Portugal’s 10-year bond yields were over 16% in January 2012.

Portugal will repay the principal of the loan tranches starting from 2025, and the repayment is scheduled to end in 2040. An early repayment of €2 billion was made to the EFSF on 17 October 2019.

The majority of the EFSF programme amount was used for budget financing needs, while a smaller portion was used for the purpose of recapitalisation of banks (Millennium, Banco BPI and Caixa General de Depositos).

The financial assistance provided was conditional upon the implementation of a macroeconomic adjustment programme, with reforms in three main areas:

  • A fiscal consolidation strategy, supported by structural-fiscal measures, aimed at setting the debt/GDP ratio on a downward path in the medium term;
  • Structural reforms to boost potential growth, create jobs, and improve competitiveness;
  • Stabilisation of the financial sector strategy based on recapitalisation and deleveraging, with efforts to safeguard the financial sector against disorderly deleveraging through market-based mechanisms supported by backstop facilities.

No. Each of the three programme financing institutions (EFSF, IMF and EFSM) committed €26 billion to support Portugal’s programme, but the country did not request the last loan tranche from the EFSM and IMF. Additionally, Portugal has already started making loan repayments to the IMF, reducing their outstanding amount with the fund. This makes the EFSF currently Portugal’s largest creditor (€26 billion in loans).

The programme for Portugal was agreed as follows:

€78 billion in external support over three years, comprising
  • €26 billion from the EFSF;
  • €26 billion from the EFSM (European Financial Stabilisation Mechanism – an EU facility funded through bonds issued by the European Commission);
  • €26 billion from the IMF.

Portugal had suffered from low GDP and productivity growth for more than a decade before the crisis started. During this period, the low interest rates resulting from adoption of the euro boosted private and public consumption, but also indebtedness. Portugal’s competitiveness was undermined by rising labour costs and structural problems. Growth in public spending was much higher than economic growth. Fiscal risks intensified through the expansion of state-owned enterprises and public-private partnerships. In early 2011, rising sovereign yields drove Portugal into a severe economic crisis. The country became unable to refinance its debt at sustainable rates and therefore requested financial assistance from the EFSF, the EU and the IMF.

Further information and related content