IMF ‘recommendations’ will be considered, says Bank of Portugal

Portugal’s central bank, Bank of Portugal (BdP), has officially ‘welcomed the recommendations of the International Monetary Fund (IMF)’, adding that these recommendations – such as those relating to systemic risks – will be taken into account in the institution’s future work.

The IMF has concluded its Financial Sector Assessment Programme (FSAP) in Portugal, which forms part of mandatory periodic assessments to which systemically important financial systems are subject.

“The BdP welcomes the conclusions of the assessment,” the financial supervisor emphasised in a statement.

The IMF considers that the national financial system remains broadly stable and resilient and that the banking sector has adequate levels of capitalisation, liquidity and profitability.

The institution highlights progress in the robustness of the sector’s regulation and supervision, as well as in the effectiveness of macroprudential policy.

However, certain risks were ‘identified’ – notably those associated with exposure to the residential property market and sovereign debt.

Among the various recommendations made are closer monitoring of systemic risks, the adoption of policies to attract and retain talent, improvements in macroprudential supervision, cybersecurity and crisis management, and strengthening the legal framework for macroprudential policy.

“The recommendations now published will be taken into account in the BdP’s future work to continue ensuring financial stability and a robust and resilient financial system,” states Portugal’s central bank, led by Álvaro Santos Pereira.

As reports explained yesterday, the IMF has also revised downwards its growth forecast for the Portuguese economy once again, from 1.9% to 1.7% this year, in its Article IV report.

This projection represents a downward revision compared with the estimate in the April World Economic Outlook (WEO), which had itself already been revised down by 0.2 percentage points from October last year.

The organisation also forecast that Portugal’s budget will be balanced this year, compared with the April forecast of a deficit of 0.1% of GDP.

In the same report, the IMF also warned that support schemes for young people buying their first home have ultimately increased demand and exacerbated market imbalances, and should therefore be withdrawn.

“The government’s new housing reform package contains measures that could stimulate supply, but they increase fiscal expenditure”, the institution emphasised, recommending that “to achieve lasting improvements in affordability, reforms should aim to reduce supply constraints, such as relaxing rules on licensing, planning permission, zoning and land use (as planned), rebalancing property taxation and improving the functioning of the rental market” said the report, which also ‘recommended’ that Portugal reduce the lowest pensions, and reviewed widows/ widower benefit.

Source: LUSA

Natasha Donn

Journalist for the Portugal Resident.