Portugal will reimburse 800 million to IMF this Wednesday and gets rid of the interests’ penalty

  • ECO News
  • 23 January 2018

With this early reimbursement, the Finance minister and the Government get rid of a 300 basis points' penalty that IMF gave the Portuguese debt for standing above the quota it allows.

This Wednesday, Portugal will make an early reimbursement of 800 million euros to the International Monetary Fund (IMF), ECO ascertained. With this repayment, the Government is getting rid of a 300 points’ penalty the Fund applies to the loan it granted Lisbon in 2011, such as the Finance State secretary highlighted this Monday, in Brussels.

If it all goes according to plan, IGCP should release tomorrow, Wednesday, another tranche of the help granted by IMF seven years ago, an operation that is already foreseen in the calendar of the agency that manages the Portuguese public debt. After this repayment, Portugal should only owe around 4.500 million euros, an amount that already stands within the country’s quota to the Fund — the amount Portugal pays IMF to be a part of the Fund — and which will allow for a decrease in the official cost of the loan. How?

As ECO previously explained, Portugal pays a reference interest rate of around 1.7% for the loan. To this rate a spread (risk premium) is added, of 100 basis points. However, this spread is worsened in the case of very high debt in comparison to the quota Portugal pays IMF. But the problem is that in addition of having an amount of debt that surpasses the limit established by the fund, there is a 200 points’ spread which rises to 300 if that bar is surpassed for longer than 51 months (four years and three months). This was the case of Portugal.

The limit was set at 187.5% of the country’s quota. For Portugal, this corresponds to 3.86 billion SDR (Special Drawing Rights, the Fund’s international currency), or approximately 4.7 billion euros. But since the country’s debt to IMF stood above the threshold for more than 51 months, the spread would rise to 300. But now, it will disappear.

This one of the reasons that made the Portuguese accelerate the reimbursements to the institution headed by Christine Lagarde over the past few months. In 2017 alone, Portugal made ten billion euros’ worth of reimbursements to IMF, taking advantage of more favorable financing conditions in the market to replace the loan to the Fund.

IMF’s mission will continue visiting Lisbon

IMF maintains a larger surveillance to countries if they hold a larger debt than 200% of their quota or if they own more than 1.5 billion SDR (around 1,750 million euros). Portugal meets the first requirement (it even decreased its quota to 187.5%), but since it still needs to pay around 2.7 billion euros to “get rid” of these regular exams — and considering that there are no more early reimbursements foreseen for 2018 –, IMF’s experts will continue landing in Lisbon this year.