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PROGRAMME TIMELINE FOR PORTUGAL

 Programme  
 
2011
Jun 2011
EFSF disburses first loan tranche
2012
2013
Jan 2013
Portugal returns to bond market
2014
2014
Portugal returns to economic growth after 4 years
 

Portugal regained economic footing

Portugal successfully reformed its economy after receiving €78 billion in rescue loans from the EFSF and other creditors. The economy became more competitive internationally. The government reined in deficits. Supported by the EFSF’s cash-for-reform approach, the economy started growing. The country ended its programme in 2014, and is now standing on its own feet again.

Portugal was the third country to receive assistance during the euro crisis. Unlike some other programme countries, Portugal had suffered a long period of weak economic growth before the crisis. Low interest rates created an illusion of prosperity, because credit was easily available. This contributed to high debt levels for companies, households, and the government. Wage growth persistently above productivity gains contributed to Portuguese products becoming expensive abroad, which accelerated a drop in exports.

There were also problems with the country’s banks. Investors were worried that they were overly exposed to the weak economy, and had stopped funding them. Instead, the banks resorted to central bank financing. Another problem was that the country did not seize the low financing costs to keep debt under control. With budget deficits persistently violating euro area rules, debt spiralled. When the global crisis hit Europe in 2010, the country had little scope to support the economy, or the banks.

Investors responded by demanding ever-higher returns on Portugal's bonds. Early in 2011, it became too expensive for the country to borrow money on financial markets. There was a risk it would default. By mid-May 2011, Portugal requested assistance from the EFSF, the EU, and the IMF.

The creditors made €78 billion available for Portugal over a period of three years. The EFSF, the EU, and the IMF each pledged a third of the total amount. The majority of the money was used to finance the budget, and part to recapitalise the banks. In return, Portugal committed to a large number of measures to reform its economy. It embarked on policies to bring down budget deficits, fix its banks, and modernise its economy. The creditors closely monitored its progress.

The programme quickly started to bear fruit. Exports started growing faster than the euro area average, as the economy became more competitive. A two-digit current account deficit was erased. The budget deficit shrank, and growth resumed. Portugal was able to issue bonds again, and successfully exited the programme in June 2014.

Portugal’s new government, which came into office in late 2015, has started to reverse some of the measures taken during its EFSF programme. Creditors are monitoring carefully whether this will hurt Portugal’s competitiveness, and its fiscal situation.

Details of EFSF financial assistance for Portugal:

Date of disbursement Amount disbursed Cumulative amount disbursed Initial final maturity Revised final maturity
22.06.2011 €3.7 billion €3.7 billion 05.07.2021 01.07.2036
29.06.11 €2.2 billion €5.9 billion 05.12.2016 03.12.2025
20.12.11 €1 billion €6.9 billion 23.08.2025 03.12.2025
12.01.12 €1.7 billion €8.6 billion 04.02.2015 30.01.2035
19.01.12 €1 billion €9.6 billion 19.07.2026 18.07.2027
30.05.12 €3.5 billion €13.1 billion 30.05.2032 30.05.2032
30.05.12 €1.7 billion €14.8 billion 30.05.2032 30.05.2035
17.07.12 €1.5 billion €16.3 billion 17.07.2038 17.07.2038
17.07.12 €1.1 billion €17.4 billion 17.07.2038 17.07.2040
03.12.12 €0.8 billion €18.2 billion 03.12.2028 03.12.2028
07.02.13 €0.8 billion €19 billion 07.02.2022 07.02.2026
27.06.13 €1.05 billion €20.05 billion n.a. 27.06.2033
27.06.13 €1.05 billion €21.1 billion n.a. 27.06.2034
22.11.13 €3.7 billion €24.8 billion n.a. 22.11.2033
28.04.14 €1.2 billion €26 billion n.a. 28.04.2038

Weighted average maturity of loans: 20.8 years

 

Related documents

Legal documents

Review documents published by the European Commission

FACTS

  • €26 billion
    amount disbursed to Portugal by its largest creditor, the EFSF
  • 20.8 years
    weighted average maturity of EFSF loans to Portugal
  • 2025
    Date when Portugal starts to repay its EFSF loan. All payments due until 2040
  • €12 billion
    amount used by Portugal for bank recapitalisation (from total EFSF/EFSM/IMF loan amount of €78 bn)
  • 0.5%
    Portugal’s estimated current account surplus in 2016
  • 2%
    Average interest rate on EFSF loans to Portugal (as of 31/12/2015)
  • May 2013
    Portugal issued 10-year bond, first after EFSF programme started

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 (0.9% predicted in 2016). Fiscal adjustment has been significant, with Portugal’s public deficit dropping from over 10% in 2009 to 2.7% (predicted) in 2016.

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.

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.

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