OECD’s 12 recommendations to Portugal

  • Mariana Kouprianoff
  • 18 February 2019

OECD's Economic survey on Portugal comes along with 12 recommendations. According to the report the Portuguese economic conditions have improved significantly "with GDP now back to pre-crisis levels".

The report starts off by noting that the country’s economic conditions have improved significantly, as ” GDP is now back to its pre-crisis level and the unemployment rate has declined 10 percentage points since 2013 to below 7%, one of the largest reductions in any OECD country over the past decade”.

This study aims at “promoting convergence and well-being” in Portugal and it focuses on the signs of progress achieved in the area of public finances, reduction of public and private debt and the improvement of the banking system which, altogether,  have the potential to “improve [the country’s] resilience to economic shocks”

OECD’s analysts also noted that the performance in terms of exports, as a share of GDP,  remains below that of other comparable small European economies, noting that “further shifting the orientation of the economy to the external sector is vital for Portugal given the strong link between trade openness and GDP per capita”. For this to happen, the OECD suggests that policymakers incentivise exporting companies “to expand and improve their competitiveness”, through the adoption of new measures.

One by one, here are the twelve main recommendations the committee has outlined for the Portuguese economy, which are the result of a thorough analysis to our country’s economic performance.

Improving fiscal sustainability and financial stability

  • Reducing fiscal deficit

Main findings: There have been steady reductions in the fiscal deficit as a share of GDP. Nevertheless, public debt is high and poses risks in an environment of heightened global economic uncertainty

Recommendation: Continue gradual fiscal consolidation to ensure the decline of public debt.

  • Taxes on businesses

Main findings: Tax administration remains particularly cumbersome for businesses.

Recommendations: Simplify the tax system by reducing the use of special provisions (e.g. tax exemptions, special rates) and ambiguity in the tax language.

  • Non-performing loans

Main findings: The non-performing loan ratio remains high, weighing on banks’ profitability and solvency.

Recommendation: Competent authorities should continue to monitor NPL reduction plans, translating performance in achieving targets into capital requirements.

  • Ensure collateral in bankruptcy cases

Main findings: Banks should be better able to enforce collateral without going through long and uncertain court proceedings.

Recommendations: Make bankruptcy a viable solution for heavily indebted individuals, reducing the time to discharge and exempting more of the debtor’s assets from bankruptcy
proceedings. Introduce an out-of-court mechanism to facilitate the liquidation of non-viable firms.

Further promoting export performance

  • Lifelong learning opportunities for low-skilled workers

Main findings: The skills of the population aged over 24 are lagging. Participation in lifelong learning activities are particularly modest for those with initially low skill levels.

Recommendations: Target lifelong learning opportunities to the low-skilled, including by collecting information on the private returns to skills and making it publicly available.

  • Efficiency of Portuguese ports

Main findings: The efficiency of Portuguese ports is held back by regulations and practices that reduce competition between private operators.

Recommendations: In awarding port concessions, take into account the price that bidders will charge port users in addition to other criteria. Ensure that port concession contracts specify a minimum level of investment by the operator and do not renew concessions without opening a new public tender

Enhancing the judiciary to foster economic activity

  • Court proceedings remain too long

Main findings: Court proceedings remain very long, hampering timely contract enforcement for businesses. In spite of recent reforms, there are significant bottlenecks in some court districts, thereby inducing court congestion.

Recommendations: Increase the managerial autonomy of the courts so that they can effectively allocate resources such as judges, other judiciary staff and budgets. Fully analyse the data collected from the information system on court proceedings (CITIUS) so that it allows the courts to identify problematic cases and those that should be prioritised

  • Legal system’s productivity is low

Main findings: Productivity in the legal sector is low. The Bar Association represents the legal profession and regulates its services. Such self-regulation tends to identify with the interests of the profession, rather than the public interest.

Recommendation: Set up an independent supervisory body to ensure that regulations in the legal profession are in the public interest.

  • Financial crime and corruption

Main findings: The authorities have made significant efforts to investigate and fight economic and financial crime, including corruption. Nevertheless, there is still room to improve institutional arrangements in this area.

Recommendation: Continue to enhance the capacity of the Public Prosecution Office to address economic and financial crime, including corruption. Public prosecutors should continue to undertake specialised training in this area. Establish an electronic registry of interests for all government members and senior civil servants that is regularly updated.

Improving labour utilisation and reducing poverty

  • Improving labour utilisation, reducing poverty

Main findings: Despite recent progress, the long-term unemployment rate remains comparatively high, especially among low-skilled workers.

Recommendation: Avoid across-the-board rises in hiring subsidies, limiting them to those at high risk of long-term unemployment and those at risk of poverty.
Expand well-designed vocational training programmes (i.e. “Aprendizagem” and “Cursos de Educação e Formação de Adultos”), so that they reach more of the low-skilled population.
Consolidate the two vocational education systems into a single dual VET system with strong workplace training and perform a thorough evaluation of all vocational
training programmes.

Recalibrating the economy for greener growth

  • Encourage public transport

Main findings: The transport sector is responsible for a large share of Portugal’s energy consumption and CO2 emissions, which have not been declining in recent years. Portugal uses a high proportion of passenger cars relative to public modes of transport

Recommendation: Encourage public transport use and the development of new shared transport solutions, accompanied by appropriate supervision and regulation.

  • Raise taxes on carbon emissions

Main findings: Pricing of carbon emissions remains low and uneven. More consistent pricing of energy consumption according to its environmental impact would prepare Portugal for meeting longer-term environmental targets

Recommendation: Raise taxes on diesel fuel, and increase energy taxes on coal and natural gas.