Remarks by Angel Gurría,
6 February 2017
(as prepared for delivery)
Ladies and Gentlemen,
It is a great pleasure to be here in Lisbon to present the latest OECD Economic Survey of Portugal. Today’s survey is being launched against an uncertain global backdrop. The global economy is stumbling along at 3%, trade growth is slow, and we are now observing a backlash against globalisation in a number of OECD countries. Levels of trust are declining, while inequality in wealth and incomes continue to rise. Countries need to chart a path towards fairer, more inclusive globalisation.
Despite this challenging context, the Portuguese economy has recovered gradually from a deep recession, which has been supported by a broad structural reform agenda. We have seen important reforms in product and labour markets, in tax policy, in competition and in the public sector, for example. And reforms have borne fruits. The Portuguese economy is growing, unemployment is falling and there has been strong progress in boosting export performance. Portugal’s exports are now equal to over 40% of its GDP, up from 27% in 2005. This achievement has helped reverse external imbalances and the current account deficit of many years has turned into a surplus.
Portugal’s public finance outlook is also encouraging. In 2016, Portugal’s fiscal deficit is expected to be within the Maastricht limits for the first time, and significantly below 3% of GDP. More importantly, Portugal’s primary budget balance is expected to have turned into a surplus in 2016, for the first time in a quarter of a century. This is a massive achievement, for which we should acknowledge the leadership of Prime Minister Costa and Minister Centeno.
Ladies and gentlemen, our main message today is that Portugal’s reform momentum needs to be sustained. There are too many pending challenges. A lot of homework. Public and private indebtedness are very high, and the banking sector remains fragile. Labour productivity in Portugal remains low in comparison with both the OECD and EU averages. And low skills not only hamper productivity, but are also a barrier to reducing income inequality.
A new wave of reforms is needed to boost growth, productivity and, ultimately, the well-being of the Portuguese people. The OECD’s 2017 Survey highlights three priority areas where action is needed: reducing the vulnerability of the economy and making it more inclusive; raising investment; and raising skills. Allow me to comment on each of these priorities in turn.
We need to tackle those persistent vulnerabilities in the Portuguese economy. Portugal’s banks’ share of non-performing loans (NPLs) – currently around 12% of all loans – is the fourth highest in the Euro area. This is worrisome as they undermine the stability of the financial sector and leave the economy vulnerable. It also increases fiscal risks. Further distress in the banking sector would jeopardise efforts to reduce Portugal’s public debt. There need to be stronger regulatory incentives for banks to write-off debt, actions to speed up insolvency processes, a better-developed market for distressed debt.
Portugal has one the most unequal distributions of income in Europe. Important steps are now being taken to reduce inequality and poverty. The Portuguese authorities have recently made efforts to step up the guaranteed minimum income scheme, which is welcome. These changes are likely to attenuate poverty among children and youths, which were the most affected by rises in poverty in the aftermath of the crisis. Inequality could also be reduced if Portugal widened the coverage of unemployment benefits and made them independent of age – a recommendation we made when I launched our 2014 Economic Survey of Portugal. Portugal could also do more to tackle the high degree of duality – the segmentation between permanent and temporary jobs – and the gap in protection that each provides to workers.
The second issue I mentioned was investment. Investment declined sharply in the aftermath of the economic crisis and is still more than 30% below 2008 levels. Portugal’s capital stock is depleted, and the economy’s growth potential has declined. This needs to be addressed as a matter of urgency.
A fast resolution of the impaired loans will help, but much more can be done. Incentives for new capital investments could be strengthened by improvements in judicial efficiency and product market regulation, as well as efforts to reduce administrative burdens. Opening up new sources of finance – especially for SMEs – should also be a priority. The OECD is proud to be working with the Portuguese authorities on a competition assessment that will help to improve the business climate and spur the creation of new businesses.
The third challenge I mentioned was skills. Portugal has made strong progress in raising educational outcomes, with PISA scores now at or above OECD averages. Despite this progress, the average level of skills of Portuguese citizens remains low in comparison to other European countries. Bold actions are needed to raise the skill levels of the adult population. Further improvements in the education system are also needed to address skills among today’s youth.
Our report recommends focusing on a reduction in the high share of early school drop-outs which, at nearly 14%, is the fourth highest in the EU. Grade repetition also needs to be addressed. More than a third of Portuguese students have repeated a grade at least once by age 15. Further efforts are also needed to evaluate and strengthen Portugal’s vocational education system.
Ladies and gentlemen, today I am also pleased to announce the launch of the second and final phase of the OECD’s partnership with Portugal on a National Skills Strategy. In 2014 and 2015, the OECD worked closely with the Portuguese authorities on the diagnosis of Portugal’s skills challenges. Our experts spent months engaging a wide range of stakeholders, and identified 12 areas in which Portugal faces skills challenges. Now it is time to move from diagnosis to action; to translate our analysis of Portugal’s skills challenges into actions that will enhance productivity; and that will help tackle some of the inequalities that I mentioned earlier on. Later today, I will have the opportunity to discuss the project with Prime Minister Costa. And on Friday, a team of experts led by the OECD’s Education Director will meet with representatives from across government to begin work on this important project. This is one of several ways in which the OECD is working with Portugal and for Portugal.
Minister Centeno, dear friends: Portugal has carved the way to a brighter future with its reform agenda. It now needs to sustain this momentum. Please count on the OECD to continue working with Portugal and for Portugal in order to design, develop and deliver better policies for better lives.