After visiting Portugal this week the IMF commended the country's effort to pay back its debt, outlining the importance of early repayments for the reduction of "interest bill savings".
The IMF congratulated the Government’s announcement of the early pay, by the end of this year, of the debt it had contracted with the institution. In an announcement from the seventh post-programme surveillance mission to the country, the institution led by Christine Lagarde confirmed that the Portuguese state will be out of the post-programme surveillance’s eyes as soon as the payment is done.
“These operations are financially advantageous because they improve the public debt maturity profile and generate interest bill savings. Combined with the policy of maintaining strong cash reserves, this contributes to a further build-up of financial defenses against future adverse events. Once the announced repayment takes place, Portugal will exit Post-Program Monitoring status.”
From the €78bn financial rescue package given to Portugal in the midst of its financial crisis, €26.3bn were coming from the IMF loan. After exiting the troika programme in 2014, Portugal started its early repayment policy. According to the IGCP, a remaining €4.7bn were still outstanding, the equivalent to 17% of the total, by the end of October.
The goal of the Government is now to clear its debt with the IMF until the end of the year.
“Portugal’s early repayments, started since 2015, have already markedly reduced its outstanding debt to the Fund. Early repayments to the IMF reflect Portugal’s favorable market access conditions and send a positive signal to investors and markets”, the statement also noted.
The “Staff Concluding Statement of the Seventh Post-Program Monitoring Mission” starts off by referring to the Prime Minister’s announcement this Thursday, of the government’s “intention to pay off their remaining debt to the IMF this year”.
This year alone, Portugal has already paid €831m to the IMF, following up on the €10bn in debt repurchased by the Portuguese Treasury in 2017. The Finance ministry’s strategy has been to lower the costs of the loan to the IMF, which has led to a reduction of the Portuguese debt’s costs.
Portugal is paying a reference interest rate of 1.7% for the IMF loan, plus a 100 basis points spread, motivated by the high debt level the country was exposed to.