According to Christine Lagarde, chief of the International Monetary Fund, Portugal is on track for meeting the targets set by international creditors even though the country is still at risk due to high unemployment. The Portuguese people received praise for being able to carry out such painful but necessary reforms.
In May 2011 Portugal received a €78 billion bailout from the International Monetary Fund and the European Union. In exchange the country had to agree to carry out a three-year reform programme that has resulted in unemployment increasing to more than 16%, and which has plunged the country into a deep recession. Although the IMF is concerned about the high unemployment levels, it is confident structural reforms will help increase growth levels, and will create jobs in the longer term.
The reform programme is now two thirds of the way through, and Portugal recently implemented even more tough measures, including tax increases. However the Portuguese president, Anibal Cavaco Silva, recently announced that he has asked the highest court in the country to decide whether or not this year’s austerity budget is constitutional.
He is concerned that the budget will result in a lower level of income for many citizens, as well as lower social payments. He feels that while everyone will be affected by these measures, that some will be far more affected than others, and that this may be unfair. He has pointed out that the tax hikes will lead to lower output and a decline in tax revenue. The average rate of income tax will increase by 3.4% this year as Portugal aims to cut its budget deficit by 4.5% in 2013, something that will mostly be achieved through tax increases.