LISBON, Sept 22 (Reuters) - Portugal’s EU/IMF bailout was only a “qualified success”, ensuring a return to international bond markets but leaving high debts, weak banks and high unemployment, the International Monetary Fund said on Thursday.
The IMF’s evaluation of Portugal’s 78 billion euro ($88 billion) 2011-2014 bailout, to which the Fund contributed a third, found that fiscal consolidation fell short of expectations and debt levels were not stabilised as hoped.
“The program was a qualified success,” it said, pointing to the fact that in containing the debt crisis it restored Portugal’s debt market access and avoided a banking crisis.
“But Portugal was left with unfinished business. Public and private debt remain high; banks still have balance sheet weaknesses; the unemployment rate remains in double digits; and the competitiveness gap has only partly been closed,” it said.
Portugal’s bailout came at the height of Europe’s debt crisis - after Greece and Ireland were forced to seek emergency funding packages - and was intended to restore confidence, return the country to growth and reduce its large debt burden.
The IMF said the bailout “fell short of achieving all its goals” because the impact of the country’s three-year recession was underestimated and fiscal adjustment was less than planned, partly to compensate for lower growth.
When Lisbon exited the programme in 2014 many European officials held the country up as a success story in reforming its economy and returning to growth, even though recovery has so far been modest.
The IMF said separately on Thursday that a review of the country, concluded on Sept. 16, found the economy was “losing momentum”. It said growth had slowed due to weaker exports and sluggish investment, which is being held back by “uncertainty, high levels of corporate debt, and still-pronounced structural bottlenecks.”
Growth is seen at 1 percent this year and 1.1 percent in 2017, after 1.5 percent last year, the IMF said.
The bailout programme had envisaged that Portugal’s public debt would peak at 115 percent of GDP in 2013, from 93 percent in 2010, and then decline. Instead, debt reached 130 percent in 2014 and the IMF expects it to fall to 128.2 percent next year.
Fears that Portugal would default on its debts were a key concern in financial markets during the debt crisis. But the lenders agreed early in the crisis not to pursue a restructuring of public debt, the IMF said.
There were concerns that a debt restructuring could have created “substantial turmoil in European financial systems at a time of great uncertainty,” it said.
“More generally, differentiating Portugal’s (and Ireland’s) problems from Greece’s were seen as important for reducing the tail risk of a breakup of the euro area,” it said. ($1 = 0.8898 euros) (Editing by Jeremy Gaunt)
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