The Portuguese Minister of Finance Vítor Gaspar, announced today that the country will be receiving the third tranche of the €78bn financial bailout, after receiving approval from the troika.
Release of the next tranche of €14.6bn was approved by the EU-IMF-ECB troika of international lenders after their third meeting to Lisbon proved positive, said Minister of Finance Vítor Gaspar at a press conference.
The European Commission, the European Central Bank and the IMF later said in a statement concluding nearly two weeks of evaluation that Portugal was on the right track, but that the economy would continue to face difficulties this year and next.
Under the bailout, Portugal must reduce its budget deficit to 4.5 percent of gross domestic product this year from 5.9 percent in 2011 - a goal that was only met thanks to a one-off transfer of banks' pension assets to the state.
In 2013, the government must cut the budget deficit further to 3 percent of GDP
Portugal is going through its worst recession in decades as the government slashes spending and raises taxes across-the-board to meet fiscal goals under the bailout.
Reforms played a key part in the third review of the bailout as economists see improvement of the country's ability to grow as fundamental to allow it to return to growth and ride out its debt crisis.
Other reforms include changing the legal system and reforms of rental and bankruptcy laws in an effort to reduce the costs of doing business in Portugal.
However, according to Gaspar, the government's forecasts for Portugal's economic contraction and unemployment were revised down to 3.3% in 2012, from the 3% forecast in the second bailout review. This position is now completely in line with the European Commission's interim forecasts for this year released in mid-February, due to a deterioration of the [economic] perspectives in the last few months having a negative impact on exports, which are due to suffer a reduction of external demand, Gaspar said.
The new forecasts are also in line with those included in the troika's statement, which foresaw a small recovery next year based primarily on private investment and exports. It predicted GDP would shrink 3.25% this year, in line with the government's downward revision.
Gaspar also added that unemployment is expected to rise to 14.5% in 2012, and slightly under 14% in the beginning of 2013.
According to the officials, who wrapped up a two-week evaluation of the country's program, Portugal has the tools to meet fiscal targets for 2012 and start a slow recovery as soon as next year.
Reforms to increase competitiveness, growth, and jobs have also progressed, although many reforms still await full implementation, the IMF, European Commission and the European Central Bank said in a joint statement.
The minister stressed repeatedly the focus on structural measures and their role on medium- and long-term potential to boost the economy.
The lenders' approval comes as Portugal continues to race against the clock to show markets that, unlike Greece, its bailout will be successful. Pressure on Portugal's rescue program has been growing amid fears the country won't be able to return to the market for financing in September next year as expected.
Although Portugal has been successful in selling short-term debt, bond prices have dropped sharply recently in the secondary market after Standard & Poor's became the third rating company to downgrade the debt to junk status last month.
Fears that Portugal's economy could contract more than estimated by the government in 2012 are also growing, given that other European countries-and Portugal's main trade partners-are also suffering an economic slowdown.