Remarks by Angel Gurría
18 February 2019, - Lisbon, Portugal
(As prepared for delivery)
Minister Siza Vieira, Minister Mourinho Félix, Ladies and Gentleman,
I am delighted to be here in Lisbon to launch the 2019 OECD Economic Survey of Portugal. I would like to thank the Portuguese authorities for their excellent collaboration in the preparation of this report.
The Portuguese economy is performing well
I am happy to start with some good news. Portugal’s economic recovery is now well established, with GDP back to its pre-crisis level. Although youth unemployment remains high, Portugal’s unemployment rate has declined 10 percentage points since 2013 to below 7% - this is one of the largest reductions in any OECD country over the past decade. This is still above the OECD average (of around 5%), but the reduction has been impressive.
In line with this progress, GDP is projected to rise by around 2% a year in 2019 and 2020. Investment and consumption are now driving the economy forward, complementing Portugal’s stellar export performance over the past decade. Since 2010, exports share in GDP has risen by over 13 percentage points, and the volume of Portugal’s annual exports has doubled since 2000. The tourism sector is also booming, as visitors continue to be attracted to Portugal’s beautiful landscapes, cities and vibrant culture.
Despite this progress, legacies of the crisis remain, with the poverty rate of the working age population still elevated and perceptions of subjective wellbeing below pre-crisis levels. The economic horizon is also clouded by uncertainty and risk. A variety of potential external shocks threaten to derail growth in an open economy like Portugal. These include a significant economic downturn in emerging economies, higher political uncertainty in the European Union - in particular the risk of a no-deal Brexit - as well as further protectionist trade policies being enacted by other countries.
Portugal has lower labour productivity than the OECD average, and productivity growth has also slowed in the past two decades. As digitalisation further skews labour demand towards high-skilled activities, this situation threatens to exacerbate the already high levels of inequality in Portugal.
Our Survey points to several key areas of opportunity where Portugal needs to improve its resilience and sail through this stormy weather towards more inclusive and sustainable growth.
Let me share some of our key assessments and recommendations.
First, the need to improve the health of public finances and the financial system.
Public debt as a percentage of GDP is still around 120%, one of the highest in the OECD. Portugal’s population is ageing rapidly, with the ratio of old-age to working-age population anticipated to rise from around 35% in 2015 to just below 80% by 2075. This has enormous implications for public expenditure, including pensions but also health-related costs. The government has pursued significant reforms of the health sector and public pension system. Nevertheless, fiscal sustainability would benefit from further moving health treatment to primary care settings and further reducing pathways to early retirement.
There is also scope to buttress public finances on the revenue side. The use of consumption tax exemptions and reduced rates narrows the tax base and undermines the efficiency of the tax system. The country could also consider raising environmental taxation, as the domestic pricing of some fuel sources do not reflect the environmental costs of their use. As well as raising tax on some forms of energy, such as coal and natural gas, new shared transport solutions should be encouraged to promote more sustainable growth, accompanied by appropriate supervision and regulation.
Addressing remaining vulnerabilities in the financial sector will also help make the economy more resilient. Non-performing loans in the banking sector have consistently declined, but they continue to weigh down banks’ balance sheets. Write-offs of non-performing loans by banks should continue to be actively encouraged, as Portugal cannot only count on the economic recovery to see them decline further. Non-performing loans can also be further reduced by making the liquidation of failed firms easier and reducing constraints to them exiting the market.
The second challenge that we highlight in the Survey is the need to improve the efficiency of the judicial system, partly to promote productivity growth in the business sector.
The judicial system is an area where Portugal is facing challenges and we are working with the Government to address them. In fact, this is the first time that anThe OECD Economic Survey has had a special chapter on the judicial system. Lisbon will also be the host of the OECD Global Policy Roundtable on Equal Access to Justice on 27-28 March.
Recent reforms in Portugal have reduced the time to resolve a case in the court system, but it remains long compared with other countries. It traditionally takes over double the time to resolve a civil or commercial case in first instance courts in Portugal than it does in some other OECD countries such as Estonia, the Slovak Republic, Austria and the Netherlands. To further enhance judicial efficiency, the information system that registers court proceedings in Portugal should be better utilised and the courts should be granted stronger autonomy in managing their resources.
The Portuguese authorities have also made sustained efforts to foster integrity and strengthen anti-corruption efforts in the public and business sectors and that should continue to be prioritised.
A third key challenge addressed in our Survey is the design and implementation of reforms to further improve Portugal’s productivity and export performance.
An important channel through which raising productivity will boost living standards is by raising international competitiveness. Despite Portugal’s recent export expansion, measures of external openness, such as exports as a share of GDP and the stock of foreign direct investment as a share of GDP, are still below those of other European economies of comparable size.
In this area, the survey draws attention to strict regulations in some services sectors, including professional services and transport, as raising costs and deterring new firms to start-up and then to expand to become exporters. The survey also highlights ways to improve the governance and efficiency of Portugal’s ports, which are held back by regulations and practices that reduce competition between private operators. Better calibrating the awarding of port concession contracts should promote competition between the private contractors that provide port services and would ensure that the quality and price of services are optimised. In turn, this will also benefit the growth of exporters that use these services. Developing skills, partly through encouraging more participation in lifelong learning, and the innovation capacity of small businesses in the export sector should also continue to be a focus.
Ministers, Ambassador, Ladies and Gentlemen,
The ambitious structural reforms that have been conceived and successfully implemented by this government and the previous ones Portugal over the past decade have helped ensure Portugal’s its economic recovery.
The economy is moving in the right direction but there is still a lot do to promote a more inclusive and sustainable growth. The OECD is proud to have been part of this journey and we remain committed to deepening engagement with Portugal to help design, develop and deliver better policies for better lives. Thank you.