Portugal should push on with austerity: IMF

Portugal's economic recovery remains on track, the International Monetary Fund (IMF) said on Thursday in a press release, but the debt-laden country must push on with further austerity after the general elections.

"It will be essential to regain momentum on structural reforms when a newly elected government is formed," the IMF states in its second post-program monitoring with Portugal report.

The IMF, one of the three contributors to the 78-billion-euro bailout the country signed in 2011 to avoid bankruptcy, points out that private debt is still too high and is "likely to constrain medium-term growth prospects as favourable cyclical factors weaken."

Portugal's public debt is forecast to drop to 127 percent of Gross Domestic Product (GDP) this year, meaning that the country is still vulnerable to market turbulence, the IMF said.

"Further fiscal adjustment is needed to further reduce vulnerabilities from high public debt, particularly given the increased risk of financial market turbulence."

The IMF also warns that loan performance has continued to worsen, with non-performing loans increasing to 12.3 percent in March.

On a brighter note, the economy is slowly growing, with the IMF expecting 1.6 percent growth this year after 0.9 percent growth in 2014, according to the report.

The report concludes that the current economic recovery and the beginning of a new political cycle "presents a favorable opportunity to press ahead with reforms, particularly in the areas of labor market and public sector reform."

The Portuguese central ruling right coalition faces elections on Oct. 4, with the anti-austerity Socialist party running neck-and-neck in recent polls. Endit