Portugal has passed the third review by inspectors from the European Union, International Monetary Fund and European Central Bank — who said it was “on track” with its austerity programme but that “challenges remain”.
The officials from the so-called troika will now sign off on the next instalment of the 78 billion euro bailout that is stopping Portugal from going bankrupt.
The country’s finance minister Vitor Gaspar confirmed it will not need a second rescue like Greece. He said with the evaluation that the overall agreed measures are being implemented “we will not ask for more time or more money.”
Gaspar did warn things are not going to be easy saying: “This year we face a considerable effort that cannot be minimised.”
He also said Portugal’s economy will shrink by 3.3 percent this year rather than the previous forecast of 3.0 percent.
The jobless rate will now reach 14.5 percent, up from the government’s previous estimate of 13.7 percent.
That echoed the troika who said Portugal’s economic slump will deepen this year before a slow recovery should take hold in 2013 and they urged more reform efforts.
Many economists still believe the country may have to seek more emergency funding or even be forced to restructure its debts like Athens.
“We are currently working on an assumption that they will need a second bailout before the end of the year due to a combination of the recession and the fact that bond yields remain high,” said Diego Iscaro, economist at IHS Global Insight.
“Portugal has the lowest rating in the euro zone now that Greece is in default, so we assess that if there is a probability of default, it’s higher in Portugal than in any other country in the euro zone,” said S&P analyst Moritz Kraemer.
Kraemer said Portugal’s situation was different to Greece, partly because it is seen as more able to implement adjustment.
“But on the other side of the coin you have a really poor growth prospects for some time to come while the deleveraging both in the public and the private sector runs its course.”