Last autumn the Portuguese government launched an initiative to try to cut €4 billion worth of public spending through the state reforms, and asked the international Monetary Fund for help. The government has now released a report from the IMF, but it’s not likely to be very popular.
It suggests that large-scale layoffs should be made within the public sector, and has also suggested reductions in pensions, unemployment and health benefits and education to try to save money. Although these cuts are likely to be very unpopular, it’s quite clear the welfare state isn’t sustainable. The aim of these spending cuts is to prepare the public sector within Portugal for the expiry of the bailout from the IMF and the European Union.
Although Portugal received a €78 billion bailout, under the terms of the rescue plan it is scheduled to return to financing itself within the bond market in the second half of this year. However opposition to the Portuguese bailout has increased considerably during the past few months, and it’s likely any of these proposed cuts would further inflame the situation. Many Portuguese already feel the welfare state has been negatively impacted by austerity measures.
These cuts weren’t originally part of the country’s bailout plan which was signed in 2011, but are likely to be evaluated by the IMF and the European Union next month. One of the possible measures suggested by the IMF is a reduction in the number of civil servants of between 10% and 20% which could save up to €2.7 billion. Cutting pensions by 10% would save another €2.3 billion.