The following is the Executive summary of the OECD assessment and recommendations, taken from the Economic Survey of Portugal 2006 published on 20 April 2006.
Portugal’s economic performance has deteriorated markedly since 2000, with the slowdown turning out to be more severe and prolonged than in most other OECD countries. This lack of resilience reveals structural weaknesses. Meanwhile, with low growth and weak control of public expenditure, the fiscal deficit has remained at unsustainably high levels, reaching close to 6% of GDP in 2005. Despite the existence of a large output gap, the high fiscal deficit leaves no room to stimulate demand. The government has embarked on a strategy that aims at consolidating public finances and enhancing growth and it is important to strengthen these efforts. Without more wage restraint and higher productivity growth, there is a clear risk that Portugal’s competitiveness continues to deteriorate and the income gap vis-à-vis the OECD average widens further.
Immediate and forceful implementation of the planned spending reforms is needed to put public finances on a sustainable path and improve efficiency. The key is to carry through the structural reforms initiated to address the chronic weak control of public spending, including the public administration reform, the ambitious health reform that started under the previous government and the overhaul of the civil servants pension system. To ensure fiscal sustainability over the longer run, additional measures are needed, in particular a fundamental reform of the general pension system, the adoption of binding medium-term expenditure ceilings and more systematic cost-benefit assessment of public investment. In addition, further simplification of the tax system would help both to raise more revenue and to foster economic growth.
Improving the educational achievements of the younger generation is a priority. Portugal has a considerable human capital lag within the OECD, and the EU in particular. Continued action to improve and diversify education services is required, with a view to reducing the number of early school leavers who have limited competences. Efforts are needed to support the effective use by schools of their (recently devolved) autonomy as this would help adapting teaching to local needs and supporting low achievers. It would also be desirable to increase the awareness of students on the high returns to schooling.
Modernizing the economy through tertiary education, training and innovation would raise productivity and help Portugal cope with global competition. Portugal needs to continue shifting away from traditional labour intensive products into higher value-added activities. The tertiary education system needs to be rationalised and diversified, and its scientific capacity strengthened. The system's financing should be reviewed to ensure a more equitable access to a broader public. The participation of adults in training activities should be stimulated, by targeting support towards needy groups, enhancing the quality of training courses and evaluating the effectiveness of existing programmes. Innovation in firms and research institutions should be enhanced by developing the links between them and by ensuring the effectiveness of tax incentives.
Creating a more dynamic business environment, enhancing competition and facilitating labour market adjustments are also needed to achieve a higher growth path. While the regulatory framework for doing business has improved markedly, further measures are needed to ease firm creation and facilitate the exit of poorly performing firms. Strengthening product market competition throughout the economy would raise efficiency and improve consumer welfare by reducing prices. Portugal’s labour market is characterized by traditionally high participation rates but a high share of short-term contracts in total employment. Easing labour market regulations would help to foster job creation on regular contracts and facilitate the reallocation of labour to its more productive use and should be accompanied by ensuring adequate job-search support and providing well-designed activation services to help transitions to employment.
How to obtain this publication
The Policy Brief (pdf format) can be downloaded. It contains the OECD assessment and recommendations, but not all of the charts included on the above pages.
The complete edition of the Economic Survey of Portugal 2006 is available from:
For further information please contact the Portugal Desk at the OECD Economics Department at email@example.com. The OECD Secretariat's report was prepared by Bénédicte Larre, Stéphanie Guichard and David Haugh under the supervision of Wilhelm Leibfritz.