IMF takes a cool tone with Portugal's anti-austerity gov't

LISBON, Portugal – The International Monetary Fund isn’t very impressed by Portugal’s new anti-austerity government.

The IMF said Thursday it is “regrettable” that a recent reversal of government workers’ pay cuts wasn’t accompanied by fundamental reforms of public-sector working practices. It added that the centre-left Socialist government needs to establish “realistic targets that are underpinned by concrete measures” to cut the country’s huge debt load.

The IMF acknowledged in a report that the government has “ambitious goals” to bring the country’s spending under control but said its plans lack detail. It also noted the government needs to quickly improve its budget management and transparency.

Portugal needed a 78 billion-euro ($86.7 billion) international bailout in 2011 amid Europe’s debt crisis. In return for that money, creditors, including the IMF, demanded three years of deeply unpopular cuts to pay, pensions and government spending on social services.

A general election last year produced a Socialist government kept in power by an alliance with the Communist Party and radical Left Bloc. Their common platform is rolling back austerity. That has included bringing back four public holidays, a return to the government workers’ traditional 35-hour working week, down from an austerity-era 40 hours, and cutting the sales tax on restaurant meals to 13 per cent from 23 per cent.

Despite that, the government says it will abide by the fiscal rules of eurozone membership.

The IMF, though, insisted that more social and economic reforms are “essential” to help cushion the vulnerable country against outside shocks, such as the United Kingdom’s vote last week to leave the EU, which is expected to reduce investment.

The report predicted Portuguese economic growth of 1 per cent this year, compared with the government forecast of 1.8 per cent.

Even so, the IMF foresees a budget deficit this year close to 3 per cent of GDP — the target set by the European Union — and admitted that government has kept a lid on spending so far.

The finance ministry said in response that Portugal will meet EU demands on debt levels.