Early repayments to the European troika save Portugal more than two billion dollars in interest

After the International Monetary Fund (IMF), Portugal will start paying off its debt to European creditors on Thursday. The strategy of repaying the troika in advance already adds up to more than two billion euros in savings with interest, but there are fewer incentives to continue to make payments ahead of time.

The Portuguese government is expected to spend 6,821.2 million euros this year just to pay interest on the debt, according to estimates by the National Statistics Institute (INE). But the figure – which compares with 8,239.3 million in 2015 – should continue to fall thanks, on the one hand, to the sharp fall in the cost of issuing new debt (currently at historical lows) and, on the other, to the early repayment of the more expensive debt.

It should be noted that throughout 2017 and 2018, Portugal repaid in advance the total debt to the IMF, which had an average cost of 4.4%. In total, the early repayment of this debt generated a saving of 1.92 billion euros for the Portuguese State. This Thursday, the country will make its first early repayment to the European Financial Stabilisation Fund (EFSF), in the amount of two billion.

This debt has an average cost of 1.7%, which despite being much lower than the interest rate on the IMF loan is considerably below market costs. Between January and July (the last available data), the country financed itself with an average cost of 1.3%, while in the secondary market all the Portuguese debt up to six years has negative interest rates and at ten years it trades below 0.20%.