Article 1
Implementing Decision 2011/344/EU is hereby amended as follows: in Article...
Article 2
This Decision shall take effect on the day of its...
Article 3
This Decision is addressed to the Portuguese Republic.
Council Implementing Decision
of 23 April 2014
amending Implementing Decision 2011/344/EU on granting Union financial assistance to Portugal
(2014/234/EU)
THE COUNCIL OF THE EUROPEAN UNION,
Having regard to the Treaty on the Functioning of the European Union,
Having regard to Council Regulation (EU) No 407/2010 of 11 May 2010 establishing a European financial stabilisation mechanism , and in particular Article 3(2) thereof,
Having regard to the proposal from the European Commission,
Whereas:
(1)
The Council granted financial assistance to Portugal, at the latter's request, on 17 May 2011 by means of Implementing Decision 2011/344/EU . That financial assistance was granted in support of a strong economic and financial reform programme (the ‘Programme’) which aims to restore confidence, enable the return of the economy to sustainable growth, and safeguard financial stability in Portugal, the euro area and the Union.
(2)
For technical reasons of data availability, which are independent of the Portuguese authorities' action, the twelfth and final review under the Programme cannot start before mid-April 2014. At the same time, the availability period of the financial assistance is to end on 18 May 2014. To allow for a full assessment of Programme compliance under the final review in due diligence, which is a condition for the release of the last instalment, a short technical extension by six weeks of the availability period of the financial assistance is a necessary formality.
(3)
In line with Article 3(10) of Implementing Decision 2011/344/EU, the Commission, together with the International Monetary Fund (IMF) and in liaison with the European Central Bank (ECB), conducted, between 20 February and 28 February 2014, the eleventh review of the Portuguese authorities' progress on the implementation of the agreed measures under the Programme.
(4)
Real gross domestic product (GDP) in 2013 performed better than projected at the tenth Programme review and is now estimated to have declined by 1,4 % (up 0,2 percentage points). This is the result of robust positive growth in the fourth quarter of 2013 and statistical upward revisions for previous quarters. Short-run indicators point to a further strengthening of the economic recovery in the current year. On an annual basis, real GDP is estimated to move into positive territory in 2014 and to remain there in 2015, with growth of 1,2 % and 1,5 %, respectively. The labour market outlook has improved as well, but unemployment remains high, foreseen to decline to 15,7 % in 2014 and continue declining thereafter. Downside risks to the macroeconomic outlook remain, as the projected recovery crucially hinges on positive trade and financial market developments, which also depend on the broader European outlook.
(5)
The general government deficit is estimated to have been reduced to around 4,5 % of GDP in ESA-95 terms in 2013 (excluding bank recapitalisations, about 4,9 % including them), i.e. about 1 % of GDP below the target of 5,5 % of GDP. The overperformance is explained mainly by better-than-expected State tax revenues (including the one-off tax and social security debt recovery scheme) and lower-than-expected expenditure at the central government level (e.g. in acquisition of goods and services and capital expenditure). By contrast, non-tax revenues have been underperforming. The overall fiscal effort, measured by the improvement in the structural balance, is estimated at 1 % of GDP.
(6)
The stock of domestic arrears has declined by about EUR 1,2 billion (0,7 % of GDP) on the back of the different debt settlement programmes (for the health, local and regional sectors). Nevertheless, new arrears are still accumulating albeit at a reduced pace.
(7)
The carry-over from the 2013 budget execution and the improved macroeconomic outlook for 2014 are estimated to have a positive impact of 0,7 % of GDP on the baseline fiscal accounts in 2014. About 0,2 % of GDP is estimated to result from the positive carry-over effect and a further estimated 0,5 % of GDP is explained by increases in revenues and social security contributions as well as lower unemployment benefit expenditures due to the upward revision of growth and employment, as well as a downward revision of the unemployment rate.
(8)
The 4 % of GDP deficit target for 2014 is underpinned by consolidation measures totalling 2,3 % of GDP included in the 2014 budget and other supporting legislation. These measures are primarily of a permanent nature and rely predominantly on expenditure savings. Measures worth about 1,8 % of GDP are drawn from the public expenditure review and are complemented by smaller-scale revenue-increasing measures worth about 0,4 % of GDP as well as some one-off items of around 0,1 % of GDP. The public expenditure review measures act along three main axes: (i) reduction of the public-sector wage bill by, among others measures, reducing over-employment in specific sub-sectors and a revision of the wage scale; (ii) pension reform, in particular by increasing the retirement age to 66 years and introducing changes to the conditions for granting survivors' pensions; and (iii) sector-specific reforms mainly aimed at streamlining personnel costs, intermediate consumption and investment across line ministries. The other permanent revenue-increasing measures include increments in company cars taxation and excise duties on alcohol and tobacco. Most legislation underpinning the permanent consolidation measures has entered into force as from 1 January 2014.
(9)
Given the improvement in the macroeconomic outlook and positive carry-over from 2013, risks around the achievement of the 2014 fiscal targets have become more balanced than previously as the envisaged measures cater for budgetary pressures and implementation risks. Higher pressures could especially arise for some revenue items (e.g. property income) as well as in intermediate consumption and social transfers. Moreover, beyond delays on some permanent measures, implementation risks are first and foremost of a legal nature: four measures included in the Budget Law have been sent to the Constitutional Court (including the wage scale revision and the changes to the survivors' pension entitlements) and there is a possibility that other measures in the recent Supplementary Budget will also be challenged.
(10)
The public debt-to-GDP ratio has reached 128,8 % in 2013. Debt is forecast to gradually decline from this year on, with a projected debt ratio of 126,7 % of GDP in 2014. The decline in 2014 is expected to be partly supported by the further use of cash deposits as well as the ongoing reallocation of the Social Security portfolio from foreign assets to government securities. Net debt is projected to remain below 120 % of GDP by end-2014.
(11)

The budgetary adjustment process is flanked by a range of fiscal-structural measures to enhance control over government expenditure and improve revenue collection:
- on public financial management: the commitment control system is showing results by limiting the build-up of new arrears but implementation needs to be monitored closely to ensure that commitments are covered by the available funding and no new arrears are accumulated. The accumulation of new arrears is in particular due to structural imbalances in some state-owned hospitals as well as in the railroad company Comboios de Portugal. Strategic plans to underpin the financial sustainability of these State-owned enterprises (SOEs) and prevent the accumulation of new arrears in 2014 are under assessment. The comprehensive reform of the Budget Framework Law is progressing. As a first step, the Budget Framework Law should be amended by end-March 2014 to ensure the full transposition of the requirements set out in the Treaty on Stability, Coordination and Governance in the Economic and Monetary Union and the economic governance package known as the ‘six-Pack’,
- while the renegotiations of private-public partnerships (PPPs) have made progress, they could not be concluded by the end of 2013 as planned. Part of the savings was achieved in 2013; nevertheless, savings that failed to materialise in 2013 will accumulate this year, adding to the significant savings expected for 2014 and beyond. SOEs reached operational balance on average in both 2012 and 2013 and additional reforms are foreseen to avoid a renewed deterioration of their results. Privatisation has made good progress and the proceeds exceed the target under the Programme,
- reforms towards a modern compliance risk management model of the revenue administration continue. The new Risk Management Unit is now operational and focuses in the first place on improving compliance of certain groups of taxpayers such as the self-employed and high net wealth individuals. The fight against tax fraud and evasion continues with initiatives such as the recently launched Value Added Tax lottery,
- reforms in the public administration are being implemented with a view to modernising and rationalising public sector employment and entities. A number of key reforms in the public administration support the public expenditure review and underpin the 2014 consolidation strategy. These include: (i) measures to address public employment and aimed at rebalancing the composition of the public sector workforce towards high-skilled and better-trained civil servants (e.g. through mutual agreement terminations and a requalification scheme); (ii) a revision of the wage scale and the development of a single wage-supplements' scale (expected to enter into force by end-December and end-June 2014, respectively); (iii) the compilation of the existing rules of public sector employment along the structure of the private Labour Code through a new general Public Administration Labour Law; and (iv) convergence of the public-sector employees' pension system (CGA) to the general pension system. Other recent reforms in the public administration include the implementation of the strategy of shared services in the area of financial resources in all structures to be covered by the initiative.
(12)
Policy implementation and reforms in the health sector continue progressing and produce savings through increases in efficiency. The existence of an important stock of arrears is strongly, though not solely, related to the consistent underfunding of SOEs hospitals vis-à-vis their service provision. The Portuguese authorities remain committed to implementing the ongoing hospital reform and to the continued fine-tuning of the set of measures related to pharmaceuticals, centralised procurement and primary care.
(13)
Further progress has been made in implementing growth and competitiveness-enhancing structural reforms. The Portuguese authorities have adopted additional measures to reduce unemployment and to boost labour market effectiveness. Further improvements to the wage bargaining system and continued actions to reduce the high level of segmentation in the labour market are under discussion. A draft law revising the definition of individual fair dismissals in the Labour Code has been sent to the Parliament after previous amendments were overturned by the Constitutional Court. The system of job search assistance and activation has experienced further progress.
(14)
Relevant reforms in the education system have been implemented so far. The Portuguese authorities are committed to continuously evaluating and supervising them. Portugal has also approved a decree law creating a short-cycle training course and another one is in the pipeline to create the rules governing professional schools of reference.
(15)
The Portuguese Government introduced a new levy on energy operators which must be closely monitored to avoid its being passed on to end-user prices. The Government will present concrete measures to tackle remaining excess rents and further reduce energy costs for the economy.
(16)
Despite positive developments over the review period, progress in transport reforms is evolving at a slower pace than expected. Following the presentation of the prioritising of infrastructure projects, a clear long-term vision of the transport system is expected by the time of the twelfth review. In the meantime, the legal framework of the transport regulator (AMT) was approved in March 2014. Further policy reforms in the ports sector are necessary, in order to boost Portugal's competitiveness. As regards the railway and urban transport services, the Portuguese authorities need to increase efforts to strengthen their financial sustainability, competition and efficiency.
(17)
Progress on the adoption of legislative amendments to transpose Directive 2006/123/EC of the European Parliament and of the Council has continued, albeit at a modest pace. The construction laws, the law amending the legal regime of universities, and the submission to Parliament of the professional bodies' amended statutes following the adoption of the horizontal framework law on public professional associations, have experienced further delays. Progress was observed in making the Point of Single Contact fully operational.
(18)
Following the full implementation of the new legal framework, the urban lease reform is ongoing. Nonetheless, the impact of the reform needs to be continuously assessed.
(19)
Following the adoption of the framework law setting the main principles of the functioning of the national regulatory authorities, the by-laws of the national regulatory authorities are being amended accordingly. Some of them have already been approved.
(20)
Measures to improve the licensing environment and reduce the administrative burdens have advanced and an inventory of the burdensome regulations is ongoing. However, the one-in/one-out rule for new regulations, the measures for environmental and territorial planning, and the review of the geological exploration and mining licensing regimes have been delayed.
(21)
The banks' capital buffers remain broadly adequate, also when using the capital requirements rules laid down out in Directive 2013/36/EU of the European Parliament and of the Council for evaluating the banks' own funds. These capital rules have applied since January 2014 with a threshold set at 7 % of Common Equity Tier 1 ratio for all banks and an add-on of 1 percentage point for the largest four banks. The system wide loan-to-deposit ratio has decreased to 117,0 % and is likely to decrease further until the end of 2014.
(22)
Efforts to diversify the sources of funding for the corporate sector are being continuously strengthened. The Portuguese Government has appointed the experts for the committee setting up a Development Financial Institution (DFI). The committee is in charge of conceiving the founding documents of the DFI, in particular the by-laws, establishing the strategic business plan and devising the structure of the new entity. The DFI's aim is to streamline and centralise the implementation of financial instruments supported by the European structural and investment funds, which relate to the provision of finance for the corporate sector.
(23)
The Portuguese authorities have agreed to prepare, in consultation with Banco de Portugal, a strategic plan aiming at addressing the corporate debt overhang and supporting the capital reallocation towards the productive sectors of the economy, while promoting financial stability.
(24)
Measures to improve the governance, efficiency and risk management practices within the National Guarantee System which manages the government-sponsored credit lines have been implemented. A new methodology to set the interest rate caps is currently being applied to guaranteed loans.
(25)
In the light of these developments, Implementing Decision 2011/344/EU should be amended,
HAS ADOPTED THIS DECISION:
OJ L 118, 12.5.2010, p. 1.
Council Implementing Decision 2011/344/EU of 17 May 2011 on granting Union financial assistance to Portugal (OJ L 159, 17.6.2011, p. 88).
Directive 2006/123/EC of the European Parliament and of the Council of 12 December 2006 on services in the internal market (OJ L 376, 27.12.2006, p. 36).
Directive 2013/36/EU of the European Parliament and of the Council of 26 June 2013 on access to the activity of credit institutions and the prudential supervision of credit institutions and investment firms, amending Directive 2002/87/EC and repealing Directives 2006/48/EC and 2006/49/EC (OJ L 176, 27.6.2013, p. 338).