LISBON, Jan 19: Portugal has made an “impressive” effort to get its public finances into shape, the International Monetary Fund said in a progress report on the indebted nation released on Friday, while cautioning that the country’s rescue plan still faced risks.

The IMF said it “welcomed the authorities’ impressive policy effort to gradually reverse the accumulated imbalances and prevent future crises” that was put in place in return for a 78 billion euro EU-IMF bailout agreed in May 2011. Portugal’s efforts cleared the way for the release of the latest slice of bailout funds, worth 838.8 million euros on Wednesday.

But the IMF directors said the country’s future was far from certain and “sizable medium-term economic challenges remained”, citing a “tense social and political climate.” Abebe Selassie, the head of the IMF mission in Portugal, said in a separate telephone conference: “This effort has not been in vain, but challenges remain and it's no time at all for complacency.”

While the IMF predicts Portugal’s economy will contract by one percent this year — a more optimistic estimate than the World Bank forecast of 1.9 per cent — its report nevertheless highlighted “risks” of the economy shrinking further.

With unemployment rates topping 16 per cent, further public opposition to reforms was likely, the report said, urging the need for “a broad consensus behind the required reforms” being put in place to reduce Portugal’s 5.3bn euro budget deficit. Last year’s demonstrations against tough austerity cuts look set to continue in 2013, with protests planned in Lisbon on January 26 and three weeks’ later.

Though Portugal is still expected by the IMF to recover in the second half of 2013, much depends on the health of the rest of the eurozone, Selassie said, citing “headwinds coming from weaker growth and lower demand for Portuguese exports.” However, plans for a return to the medium- and long-term debt markets announced on Wednesday by Prime Minister Pedro Passos Coelho remain “viable”, the report said. —AFP