Portugal receives debt warnings from IMF

Portugal's economy which has started recovering moderately received warnings from International Monetary Fund (IMF) over its debt. According to IMF Portugal's high debt if not tackled with further austerity and belt tightening might become unsustainable in the future.

Recent stronger than expected job gains, which had its best quarter in 17 years have not been enough to persuade IMF from not issuing official warnings. Latest job report showed a drop of 1.8% in the jobless rate to 11.9% for the second quarter. This stands as the lowest rate since 2010 and much lower than its peak, 17.5% in 2013.

Why the warnings if economy is improving?

• Portugal is facing election this year and current government has pledged to ease some of the austerity measures introduced during its €78 billion bailout. This might lead to lower than expected revenue, which is likely to make Portugal missing its 2.7% budget deficit originally envisaged.
  
• Debt levels are quite high in Portugal. Public debt stands at 130% of GDP and total debt (Public + Corporate + Household) stands at 360% of GDP. This makes Portugal terribly risky when rates rise in future.

IMF believes Portugal needs to continue the austerity and makes debt sustainable.