COMMISSION STAFF WORKING DOCUMENT Country Report Portugal 2020 Accompanying the document COMMUNICATION FROM THE COMMISSION TO THE EUROPEAN PARLIAMENT, THE EUROPEAN COUNCIL, THE COUNCIL, THE EUROPEAN CENTRAL BANK AND THE EUROGROUP 2020 European Semester: Assessment of progress on structural reforms, prevention and correction of macroeconomic imbalances, and results of in-depth reviews under Regulation (EU) No 1176/2011
Date: 2020-02-26
Institutions: European Commission, Secretariat-General
Subjects: Portugal, economic situation, green economy, investment, labour market, macroeconomics, public finance, social policy, structural adjustment, tax system

EN 

  EN 

   EUROPEAN COMMISSION  Brussels, 26.2.2020  SWD(2020) 521 final  COMMISSION STAFF WORKING DOCUMENT Country Report Portugal 2020 Accompanying the document COMMUNICATION FROM THE COMMISSION TO THE EUROPEAN PARLIAMENT, THE EUROPEAN COUNCIL, THE COUNCIL, THE EUROPEAN CENTRAL BANK AND THE EUROGROUP 2020 European Semester: Assessment of progress on structural reforms, prevention and correction of macroeconomic imbalances, and results of in-depth reviews under Regulation (EU) No 1176/2011 {COM(2020) 150}  
 
 
CONTENTS 

Executive summary 

1.  Economic situation and outlook* 

2.  Progress with country-specific recommendations 

3.  Summary of the main findings from the MIP in-depth review 

Introduction 

Imbalances and their gravity 

3.1. 
3.2. 
3.3.  Evolution, prospects and policy responses 
3.4.  Overall assessment 

4.  Reform priorities 

4.1.  Public finances and taxation* 
4.2.  Financial sector* 
4.3.  Labour market, education and social policies* 

4.4.   Competitiveness, reforms and investment* 
4.5.  Environmental sustainability 

Annex A: Overview table 

Annex B: Commission debt sustainability analysis and fiscal risks 

Annex C: Standard tables 

Annex D: Investment guidance on Just Transition Fund 2021-2027 for Portugal 

Annex E: Progress towards the Sustainable Development Goals (SDGs) 

References 

LIST OF TABLES 

Table 1.1: 
Table 2.1: 
Table 3.1: 
Table 3.2: 
Table 4.2.1: 
Table C.1: 

Key economic and financial indicators 

Assessment of 2019 CSR implementation (*) 

Sensitivity analysis: current account balance and net international investment position 

MIP assessment matrix 

Financial stability indicators 

Financial market indicators 

1 

4 

8 

15 

21 

21 
21 
22 
23 

26 

26 
34 
38 
50 
64 

69 

77 

78 

84 

86 

91 

11 
18 
22 
24 
35 
78 

 
 
 
Table C.2: 
Table C.3: 
Table C.4: 
Table C.5: 
Table C.6: 
Table E.1: 

Headline Social Scoreboard indicators 

Labour market and education indicators 

Social inclusion and health indicators 

Product market performance and policy indicators 

Green growth 

Indicators measuring Portugal’s progress towards the SDGs 

LIST OF GRAPHS 

Contributions to real GDP growth 

Graph 1.1: 
Graph 1.2:  GDP per capita in PPS 
Graph 1.3: 

Nominal compensation growth: actual and predicted based on economic 

fundamentals 

Balance of trade with goods 

Current Account and Net International Investment Position 

Graph 1.4: 
Graph 1.5: 
Graph 1.6: 
Graph 2.1: 
Graph 4.1.1:  Public debt projections under the baseline and alternative scenarios for nominal GDP 

Level of implementation of 2011-2019 CSRs 

Return on equity (%), domestic banks 

growth and interest rates 

Graph 4.1.2:  Public debt projections under the baseline and alternative scenarios for fiscal 

consolidation 

Graph 4.1.3:  Public expenditure by function in 2017 
Graph 4.1.4:  Public investment in 2001-2018 
Graph 4.1.5:  Tax revenue by function in 2018 
Graph 4.1.6:  Time to prepare and pay taxes in the euro area (2018) 
Graph 4.2.1:  The funding gap closed 
Graph 4.2.2:  Performing loans grow but the gross  loan stock still falls 
Graph 4.2.3:  New mortgages quadrupled, fresh consumer loans doubled, new corporate loans 

keep falling 

Graph 4.2.4:  House prices (new dwellings)  rise ever faster as the savings go quasi-unremunerated 
Graph 4.2.5:  Valuation gap on price/income, price/rent and fundamental model valuation 
Graph 4.3.1:  Unemployment rate and potential additional labour force 
Graph 4.3.2:  Annual change in the employment rate of low and medium-skilled workers (age 20-

64) since Q1-2009 

Graph 4.3.3:  At-risk-of-poverty or social exclusion rate and its components 
Graph 4.4.1:  Total factor productivity 
Graph 4.4.2:  Historical evolution of net  investment 
Graph 4.4.3:  Labour productivity at the aggregate and sectoral levels 
Graph 4.4.4:  Total population change in NUTS3 regions, 2011-2018 (% change) 
Graph 4.5.1:  Greenhouse gas emissions in Portugal by sectors 

2 

79 
80 
81 
82 
83 
86 

8 
8 

9 
11 
11 
12 
15 

26 

27 
29 
30 
32 
33 
34 
35 

36 
36 
37 
38 

39 
42 
50 
51 
51 
59 
64 

 
 
 
 
LIST OF BOXES 

Box 2.1: EU funds and programmes to address structural challenges and to foster growth and 

competitiveness in Portugal 

20 

Box 4.3.1: Monitoring performance in light of the European Pillar of Social Rights 

41 
Error! Bookmark not defined.2 
Error! Bookmark not defined. 

Box 4.3.2: Demographic ageing 

Box 4.4.1: Investment challenges and reforms in Portugal 

3 

 
 
 
 
 
EXECUTIVE SUMMARY 

down 

A  positive  economic  performance  and  policy 
effort is helping Portugal to address some of its 
challenges  (1).  Economic  expansion  has  brought 
significantly.  Though 
unemployment 
Portugal  has  also  made  progress  on  reducing 
macroeconomic imbalances associated with public 
and  private  indebtedness,  they  remain  high.  Little 
progress  has  been  made  with  other  imbalances, 
particularly  productivity  and  the  net  international 
investment  position.  To  address  these  issues, 
Portugal  is  taking  steps  to  improve  education, 
skills,  innovation,  the  business  environment,  and 
the efficiency of the justice system.  

Portugal’s  economic  performance  remains 
favourable. The economy continues to grow faster 
than  the  EU  average,  estimated  at  2%  in  2019, 
though the growth rate has slowed somewhat. The 
employment  rate  stands  above  the  Europe  2020 
target, while unemployment has reached its lowest 
level  for  17  years.  Both  long-term  and  youth 
unemployment  continue  to  fall,  but  remain  above 
the  EU  average.  Weaker  external  demand  weighs 
negatively  on  exports,  but  domestic  demand 
continues  to  grow  steadily,  helped  by  private 
consumption and investment. Although businesses 
are facing weaker economic sentiment, particularly 
in the industrial sector, increased use of EU funds 
is expected to support growth and investment. 

conditions.  Higher  cyclical  revenue,  combined 
with the lower interest burden and subdued public 
investment,  has  improved  overall  and  structural 
budget  balances.  At  the  same  time,  the  structural 
primary  public  balance  is  projected  to  deteriorate 
slightly  over 
the 
Commission’s forecast. It is projected that the ratio 
of  public  debt  to  GDP  will  continue  falling 
steadily,  although  it  is  liable  to  remain  very 
sensitive to any worsening of Portugal’s economic 
and financing conditions. 

the  period  covered  by 

faces 

shortfalls 

sustainable  growth. 

in 
significant 
Portugal 
investment.  Making  the  economy  carbon-neutral 
by  2050  require  significant  investment  in  energy 
and transport. Climate change is expected to make 
natural  hazards  more  frequent  and  extreme.  
Investment  in  risk  prevention  and  in  adapting  to 
and  mitigating  climate  change  is  thus  essential  to 
achieve 
in 
transport  infrastructure,  particularly  in  railways 
and  ports,  would  help  make  Portugal  more 
competitive  in  comparison  with  other  countries. 
Low investment in research and innovation hinder 
Portugal’s  productive  specialisation.  The  share  of 
R&D expenditure as a proportion of GDP remains 
below  the  EU  average.  This  is  holding  back 
Portugal’s  prospects  of  increasing  the  share  of 
value-added in the economy. 

Investment 

is 

to 

correct 

continuing 

Portugal 
its 
macroeconomic  imbalances.  While  progress  is 
steady  with  most  imbalances,  the  reduction  of 
external  liabilities  has  slowed  substantially  since 
2018.  Debt  ratios  in  both  the  private  and  public 
sectors  are  improving,  and  the  outlook  appears 
favourable.  Significant  progress  has  also  been 
made  with  reducing  the  stock  of  non-performing 
loans,  albeit  from  a  high  base.  After  two  years  of 
weak  growth,  labour  productivity  increased  more 
substantially  in  2019  but  the  gap  towards  more 
advanced Member States remains significant. 

Public  finances  have  benefited  from  resilient 
domestic  demand  and  favourable  financing 

(1)  This  report  assesses  Portugal’s  economy  in  light  of  the 
European  Commission’s  Annual  Sustainable  Growth 
Strategy  published  on  17  December  2019.  In 
this 
document, Commission sets out a new strategy  on how to 
address  not  only  the  short-term  economic  challenges  but 
also  the  economy's  longer-term  challenges.  This  new 
economic agenda of competitive sustainability rests on four 
dimensions:  environmental  sustainability,  productivity 
gains, fairness and macroeconomic stability  

4 

Portugal  has  made 
addressing 
the 
recommendations 

limited  progress  on 
country-specific 

2019 

There  has  been  some  progress  in  the  following 
areas:   

  Taking  measures  to  tackle  labour  market 

segmentation.  

 

 

Improving  the  skills  level  of  the  population, 
in  particular  their  digital  literacy,  including 
by making adult learning more relevant to the 
needs of the labour market.  

Increasing  the  number  of  higher  education 
graduates,  particularly 
and 
information technology. 

science 

in 

  Focusing investment-related economic policy 
on the low-carbon and energy transition, and 

 
                                                           
 
 
 
Executive summary 

extending  energy 
account of regional disparities. 

interconnections,  taking 

contribution  of 
reduction.  

social 

transfers 

to  poverty 

  Allowing  for  a  swifter  recovery  of  the 
collateral  tied  to  non-performing  loans  by 
increasing  the  efficiency  of  insolvency  and 
recovery proceedings. 

 

Increasing  the  efficiency  of  administrative 
and tax courts, in particular by decreasing the 
length of proceedings. 

There  has  been  limited  progress  in  the  following 
areas: 

 

 

Improving  the  quality  of  public  finances  by 
prioritising  spending  to  promote  economic 
growth,  while 
overall 
expenditure  control,  cost  efficiency  and 
appropriate  budgeting,  with  a  focus  on 
durably reducing arrears in hospitals. 

tightening 

up 

Improving 
the  financial  sustainability  of 
state-owned enterprises, while ensuring more 
comprehensive 
timely, 
monitoring. 

transparent 

and 

 

Improving the effectiveness and adequacy of 
the social safety net. 

  Focusing investment-related economic policy 
on  research  and  innovation,  and  on  railway 
and port infrastructure. 

  Reducing  the  administrative  and  regulatory 
burden  on  businesses,  mainly  by  reducing 
sector-specific barriers to licensing.  

There has been no progress in the following area:   

  Developing  a  roadmap  to  reduce  restrictions 

in highly regulated professions. 

Portugal  is  performing  well  on  most  aspects  of 
the  European  Pillar  of  Social  Rights.    The 
performance  in  gender  employment  gap,  income 
inequalities,  employment,  unemployment  and 
long-term  unemployment  is  better  than  average. 
However, 
leaving 
the  proportion  of  students 
education  or  training  early  is  a  major  issue,  as  is 
the  low  level  of  digital  skills.    Changes  to  the 
social  protection  system  have  not  improved  the 

As regards progress towards the national target 
under  the  Europe  2020  strategy,  Portugal  is 
close to meeting its renewables target and is on 
track  to  achieve  its  energy  efficiency  targets. 
However,  some  challenges  remain  in  these  areas. 
The  country  is  expected  to  meet  its  emission 
reduction  objectives  in  what  are  known  as  ‘effort 
sharing’  sectors  (transport,  buildings,  agriculture 
and  waste)  by  a  margin  of  25  percentage  points. 
The  employment  rate  remains  slightly  above  the 
target of 75%. Poverty reduction shows a positive 
trend,  exceeding  the  initial  target  of  200,000 
people  by  175%.  Further  progress  was  made  in 
2018  in  reducing  the  school  drop-out  rate  (early 
school  leaving),  but  it  is  still  above  the  target  of 
10%.  Meeting 
targets  for  research  and 
development  investment  and  higher  educational 
attainment remains challenging. 

the 

Progress  towards  the  Sustainable  Development 
Goals  (SDG)  differs  from  one  area  to  another 
(2). Good progress has been made towards SDG 8, 
‘Decent  Work  and  Economic  Growth’,  thanks  to 
improvements in real GDP per capita, employment 
increases and a reduction in the number of people 
in work who are nonetheless at risk of poverty. In 
contrast,  SDG 13,  ‘Climate  Action’,  is  to  be 
monitored.  Although  the  Government  has  set  an 
ambitious  climate  and  energy  agenda,  including  a 
commitment  to  net  zero  emissions  by  2050,  the 
associated  indicators  have  deteriorated  in  recent 
years. This applies in particular to total greenhouse 
gas  emissions  and  energy  consumption.  Full 
implementation  of  the  Government’s  policy  plans 
would ensure progress on SDG 13. 

findings  of 

The  main 
review 
contained  in  this  report  and  the  related  policy 
challenges are as follows:  

in-depth 

the 

  External  imbalances  are  now  adjusting 
more  slowly,  and  a  further  slowdown  is 

(2)  Within  the  scope  of  its  legal  basis,  the  European  Semester 
can help drive national economic and employment policies 
towards the achievement of the United Nations Sustainable 
Development  Goals  by  monitoring  progress  and  ensuring 
closer  coordination  of  national  efforts.  The  present  report 
contains  reinforced  analysis  and  monitoring  on  the  SDGs. 
A new annex (ANNEX E) presents a statistical assessment 
of  trends  in  relation  to  SDGs  in  Portugal  during  the  past 
five years, based on Eurostat’s EU SDG indicator set. 

5 

 
 
 
 
 
 
 
                                                           
Executive summary 

peers,  making  them  vulnerable  to  adverse 
shocks.  Efforts  are  being  made  to  remove 
remaining  impediments  to  the  resolution  of 
non-performing loans in the legal and judicial 
frameworks.  Furthermore,  while  their  capital 
ratios and profitability have improved slightly 
over  the  past  few  years,  banks  continue  to 
face  challenges  in  an  environment  of  muted 
loan growth and low interest rates. 

  Low  productivity  weighs  negatively  on 
Portugal’s  income  convergence.  Although 
the  economy  is  growing  faster  than  the  EU 
average, there has been little improvement in 
labour  productivity.  This  is  hampering  the 
country’s  growth  potential  and  keeping 
incomes  low  by  comparison  with  the  EU 
average. 

Other key structural issues analysed in this report, 
which point to particular challenges for Portugal’s 
economy, are the following:   

on 

social 

of  workers 

  Reforms  are  under  way  to address  labour 
market  segmentation  and  foster  collective 
bargaining.  To  tackle  the  persistently  high 
proportion 
temporary 
contracts,  a  tripartite  agreement  has  led  to  a 
series of amendments to the labour code and 
the 
system’s  code  of 
contributory  regimes.  The  reform  is  also 
designed to improve collective bargaining by 
labour 
reducing 
relations  and  introducing  stricter  criteria  for 
terminating 
collective 
or  modifying 
agreements. It also significantly improves the 
capacity of the labour authority to tackle false 
self-employment. 

individualisation  of 

security 

the 

  Poverty  and 

continue 

to 
inequality 
decrease,  despite  weak  social  protection 
and  rising  house  prices.  The  proportion  of 
people at risk of poverty and social exclusion 
fell in 2018 to 21.6%, and income inequality 
is  now  around  the  EU  average.  However, 
impact  on 
social 
poverty,  and 
rising  housing  prices  are 
increasing  financial  pressures  on  the  most 
vulnerable. 
transfers 
2018, 
excluding pensions reduced the proportion of 
people  at 
risk  of  poverty  by  23.8%, 
significantly  below  the  EU  average  of  34%. 

transfers  have 

limited 

social 

In 

predicted. This seems to be driven largely by 
higher  imports  of  capital  goods  related  to 
investment.  If  this  trend  continues,  domestic 
savings  will  need  to  increase  accordingly  in 
order to enable further unwinding of external 
imbalances  at  a  satisfactory  pace.  The 
importance  of  exports  is  growing  steadily, 
with  their  share  in  GDP  increasing  from 
in  2018. 
27.3% 
are 
Furthermore, 
increasing 
external 
imbalances.   

share  within 

to  43.5% 

in  2009 

liabilities 

non-debt 

its 

  Portugal’s  public  debt  continues  to  fall 
steadily  from  a  high  level.  After  having 
dropped to 122.2% of GDP in 2018, the ratio 
of  public  debt  to  GDP  is  forecast  to  have 
declined  to  119.2%  of  GDP  in  2019,  while 
the  overall  budget  balance  gradually 
approached  a  balanced position.  The  ratio  of 
public  debt  to  GDP  is  projected  to  continue 
falling  in  2020  and  2021,  albeit  at  a  slower 
pace. Portugal has deployed efforts to reduce 
interest  expenditure,  extend 
the  average 
maturity  of  debt  and  smoothen  annual  peaks 
in  its  repayment  profile.  A  more  growth-
friendly  consolidation  strategy  and  progress 
with  reforms  could  have  helped  improving 
Portugal’s  fiscal  sustainability  even  further. 
There is scope to improve overall expenditure 
control,  cost-efficiency  and  budgeting.  Such 
measures  could  help  slow  the  accumulation 
of  hospital  arrears  and  make  state-owned 
enterprises  and  the  pension  system  more 
sustainable.  This  could  create  room 
to 
improve the quality of public finances. 

  Private  debt  is  falling  at  a  fast  enough 
pace.  The  debt  ratio,  down  from  210%  to 
155%  of  GDP,  is  now  much  closer  to  the 
indicative  headline  threshold  of  133%.  Yet 
the  deviation  is  still  large  if  judged  by 
country-specific 
indicators.  The  corporate 
sector is reducing its debt slightly faster than 
households,  although 
the  difference  has 
narrowed since the beginning of 2019. 

  Portuguese  banks  have  continued 

to 
improve 
following 
their  asset  quality 
further  sales  of  non-performing  loans. 
However,  their  non-performing  loan  ratio 
remains  high  compared  to  their  European 

6 

 
 
 
 
 
 
 

Portugal  is  taking  action  to  address  housing 
affordability,  which  is  fast  becoming  a  new 
social challenge.  

in 

trends 

require 

training 

pressure 

in  Portugal  are 
Demographic 
putting 
employment, 
on 
education and training, social welfare, and 
health  and  care  systems.  The  working-age 
population  is  expected  to  decline  by  nearly 
40%  and  the  total  population  by  24%  by 
considerable 
2070.  This  will 
investment 
and 
education, 
healthcare. In view of Portugal’s low fertility 
rate,  family  support  measures  should  be 
improved 
to  achieve  a  better  work-life 
balance  and  boost  the  coverage  of  early 
childhood  education  and  care.  An  older 
population  will  also  require  more  long-term 
care, so the recently approved legal status for 
informal  carers 
is  welcome.  Addressing 
regional  specificities  and  needs  will  also  be 
important to guarantee access to an increased 
demand of healthcare services. 

  The  Portuguese  education 
is 
system 
gradually 
challenges 
improving,  but 
persist.  The  rates  of  early  leaving  from 
education  and  training  and  from  tertiary 
education  have  fallen  markedly  in  the  past 
decade.  Skills 
levels  overall  have  also 
improved.  However,  a  large  proportion  of 
adults  have  not  completed  upper  secondary 
studies, grade repetition remains high, digital 
skills  are  generally  too  weak,  and  school 
infrastructure  requires  upgrading.  Graduates 
in 
communication 
technologies account for too low a proportion 
of  the  total.  The  teaching  labour  force  is 
ageing and teachers lack job stability. 

information 

and 

  Portugal 

has 

adopted 

significant 
vocational  education  and  training  and 
adult  learning  measures,  but  more  could 
be done in terms of monitoring and follow-
up.  Quality  assurance  mechanisms 
in 
vocational  education  and  training  have  been 
improved.  However, 
the 
European  Quality  Assurance  Reference 
Framework  are  not  systematically  used  to 
system.  The  Ministry  of 
monitor 
Education  is  currently  assessing  a  national 
adult 
retrieval  and 
monitoring  would  be  helpful  to  ensure  that 

literacy  plan.  Data 

indicators  from 

the 

Executive summary 

in 

the 

vocational  education  and  adult  learning  are 
both  relevant  to  the  labour  market  and 
effective.  Participation 
flagship 
programme  Qualifica,  designed  to  tackle  the 
low  skills  level  of  the  adult  population, 
continues to grow. However, detailed training 
and  employability  results  are  still  lacking, 
its 
it  hard 
which  makes 
effectiveness. 

assess 

to 

is 

services  and 

  Steps  are  being  taken  to 
lighten  the 
administrative  burden, 
and 
judicial 
improving.  However, 
efficiency 
challenges  persist  in  product  and  services 
markets.  The  SIMPLEX+  programme  has  a 
strong  focus  on  e-government  initiatives. 
associated  with 
Sector-specific  barriers 
some 
licensing  persist,  particularly 
in 
professional  business 
the 
transport sector, including railways and ports. 
Although  the  justice  system  is  becoming 
more efficient, challenges persist, notably the 
backlog  of  cases  and  the  length  of  time  take 
to  resolve  individual  cases,  which  remain 
considerable. The authorities continue to take 
measures  to  achieve  further  improvements. 
public 
Competition 
procurement 
increased.  However, 
procedures 
coordination, 
shortcomings 
governance,  planning  and  monitoring  still 
hamper its efficiency and limit competition.  

in 
has 

the 

in 

than 

Portugal has an ambitious agenda for adapting 
to  and  mitigating  climate  change,  but  faces 
implementation  challenges.  Despite  significant 
progress  with  increasing  the  share  of  renewables 
in  the  energy  mix,  Portugal’s  economy  is  still 
the  EU 
more  greenhouse  gas-intensive 
average.  Moreover,  the  country  faces  difficulties 
with  curbing  the  trend  towards  higher  energy 
consumption.  The  Commission’s  proposal  for  a 
Just  Transition  Mechanism  under  the  next  multi-
annual 
for  2021-2027 
framework 
includes  a  Just  Transition  Fund,  a  just  transition 
scheme  under  InvestEU,  and  a  new  public  sector 
loan facility with the EIB. It is designed to ensure 
that the transition to EU climate  neutrality is  fair 
by  helping  the  most  affected  regions  in  Portugal 
to  address  the  social  and  economic  impact.  Key 
priorities  for  support  by  the  Just  Transition  Fund 
are  identified  in  Annex  D,  building  on  the 
analysis  of  the  transition  challenges  outlined  in 
this report. 

financial 

7 

 
 
 
1.  ECONOMIC SITUATION AND OUTLOOK* 

GDP growth 

Portugal’s  economic  performance  remains 
favourable,  although  growth  has  been  slowing 
somewhat.  The  short-term  projections  were 
positively  affected  by  significant  data  revisions, 
lifting  GDP  growth  to  3.5%  in  2017  and  2.4%  in 
2018  from  the  previously  reported  rates  of  2.8% 
and  2.1%,  respectively.  Weaker  external  demand 
brought further moderation in 2019 as net exports 
fell  while  domestic  demand  remained  resilient. 
Growth  is  now  estimated  at  2.0%  in  2019  and 
continues 
average 
projection.  Taking  into  account  the  recent  retail 
and production reports and expectations as regards 
external demand, economic growth is projected to 
moderate further to 1.7% in both 2020 and 2021. 

to  outperform 

the  EU 

strong 

country’s 

Potential  growth  moves  above  the  euro  area 
average.  The 
economic 
performance  in  recent  years  has  a  positive  impact 
on  estimated  potential  growth.  At  1.8%  in  2019 
and  1.9%  in  2020,  it  is  already  above  the  EU 
average.  This  indicates  a  significant  improvement 
from  the  trough  of  -1.2%  in  2012.  However,  this 
has  not  translated  into  income  convergence  with 
more  advanced  Member  States,  as  Portugal's  per 
capita  income  in  purchasing  power  standards 
(PPS)  remains  around  77%  of  the  EU  average. 
This  development  differs  significantly  from  other 
catching-up  economies.  In  fact,  the  average  per 
capita  income  in  PPS  for  the  10  countries  that 
joined the EU in 2004 is already at the same level 
as  Portugal,  overcoming  a  gap  of  about  17 
percentage points in 15 years (Graph 1.2).  

Graph 1.1:  Contributions to real GDP growth 

Graph 1.2:  GDP per capita in PPS 

Source: Eurostat 

As  a  result  of  a  substantial  rebound 
in 
investment, domestic demand retained a strong 
contribution  to  growth  in  2019.  Both  private 
consumption  and  investment  are  projected  to 
remain  major  contributors  to  growth  in  2020-21 
albeit  at  a  slower  pace.  The  expected  moderation 
in  private  consumption  is  linked  to  the  recent 
slowdown  in  job  creation.  Meanwhile,  investment 
is facing weaker economic sentiments, particularly 
in  the  industrial  sector,  but  will  be  supported  by 
the  the  EU  funds over the forecast period. On the 
supply side, the strong performance in services and 
construction is projected to continue offsetting the 
weak industrial performance. 

Source: European Commission 
*CEE-10 refers to the ten Member States from Central and 
Eastern Europe that joined the EU in 2004. 

Regional disparities  

While  Portugal’s  internal  cohesion  increased, 
the  main  reason  for  this  was  slower  GDP 
growth  in  the  richer  capital  region.  Regional 
disparities  in  Portugal  started  to  decrease  around 
2010  and  have  been  on  a  continuous  downward 
path since then. However, a substantial part of this 
decrease  owes  more  to  the  higher  contraction  of 
the  capital  region  than  to  growth  in  the  less 
developed regions. In 2017, GDP per capita in the 
Metropolitan Area of Lisbon corresponded exactly 

8 

-12-10-8-6-4-202468Q3-2010Q1-2011Q3-2011Q1-2012Q3-2012Q1-2013Q3-2013Q1-2014Q3-2014Q1-2015Q3-2015Q1-2016Q3-2016Q1-2017Q3-2017Q1-2018Q3-2018Q1-2019Q3-2019Real final government consumptionReal final private consumptionReal gross fixed capital formationReal inventoriesReal net exportsReal GDP growth (y-o-y)pps,%4050607080901002000200120022003200420052006200720082009201020112012201320142015201620172018PTCEE-10Index,EU28=100 
   
   
1. Economic situation and outlook* 

to  the  EU  average  (100%,  16  pps  less  than  in 
2010),  while  –  apart  from  the  Algarve  (83%)  –  it 
was  below  75%  in  all  other  regions.  At  sub-
regional  level,  differences  in  GDP  per  capita   
ranged  in  2016  from  Alentejo  Litoral  (109%)  to 
Alto Tamega (51%).  

by wage reports in 2019, pointing to a growth rate 
of  around  3%  as  compared  to  2.5%  in  2018. 
Portugal’s labour productivity is expected to  have 
improved  somewhat  in  2019  after  two  years  of 
decline  while  unit  labour  costs  are  likely  to 
continue rising at a moderate rate of about 2%.  

In 

the 

levels. 

innovation 

Competitiveness  varies  across  Portugal,  closely 
matching  economic  output,  GDP  per  capita, 
productivity  and 
In  a 
European  perspective,  Portuguese  regions  lack 
competitiveness. 
2019  Regional 
Competitiveness  Index  (RCI),  the  Metropolitan 
Area of Lisbon is the most competitive Portuguese 
region  –ranked  at  141  out  of  282  regions.  All  the 
other regions of Portugal are ranked  between 212 
and  267.  When  compared  with  other  EU  regions 
with  similar characteristics,  Lisbon, Centro, Norte 
and Alentejo show a similar performance on most 
dimensions  of  competitiveness,  and  some  of  their 
infrastructure is even rated as excellent. However, 
Madeira, Azores, and, in particularly the  Algarve, 
underperform on many dimensions.  

Inflation 

Inflation  fell  from  1.2%  in  2018  to  0.3%  in 
2019.  The  downturn  reflects  a  significant  decline 
in  energy  prices,  including  various  regulatory 
components  of  electricity  and  gas  tariffs,  plus 
lower prices for other administrative services such 
as  public  transport  and  telecommunications.  In 
addition,  core  inflation  has  been  contained  by  a 
continuous decline in the prices of industrial goods 
and  a  drop  in  accommodation  prices  relative  to  a 
year  earlier.  Inflation  is  forecast  to  increase 
somewhat in the next few years with core inflation 
rate. 
remaining  slightly  above 
However, the growth rate of house prices remained 
high  at  10.1%  (y-o-y)  in  Q2-2019  (see  Section 
4.2). 

the  headline 

Labour market  

to 

fall. 

Unemployment  continues 
It  was 
estimated  at  6.3%  in  2019,  down  from  7.0%  in 
2018 and is forecast to fall further to 5.9% in 2020 
and 5.6% in 2021, according to the Commission’s 
2019  autumn  forecast.  The  slack  on  the  market  is 
meanwhile  set  to  decrease  accordingly  and  wage 
growth  to  increase  somewhat,  also  helped  by  the 
unfreezing  of  career  progressions  in  the  public 
sector. These expectations  were further reinforced 

to  2.3% 

receded.  Nominal 

in  2017  and  2.5% 

Wage growth is moderate but has been inching 
up  in  recent  years  as  labour  market  reserves 
have 
compensation  per 
employee  growth turned positive in 2015, inching 
up 
in  2018. 
Compensation  growth  is  expected  to  be  close  to 
3% in 2019 and the following two years (European 
Commission 2019 Autumn Forecast). Positive real 
wage growth was recorded one year after nominal 
wages  started  growing.  Real  compensation  per 
employee  grew  at  1.2%  in  2018  and  it  were 
expected to grow at 2.7% in 2019. 

Graph 1.3:  Nominal compensation growth: actual and 

predicted based on economic fundamentals 

Source: Eurostat, European Commission 

Recent  migration  flows  support  labour  supply. 
The  working  age  population  remained  broadly 
stable 
in  2019.  Against  a  background  of 
demographic  ageing  and  at  slightly  negative 
natural rate of change in population, labour supply 
was  supported  by  a  positive  net  migration  flow 
accounting for about 0.2% of the total population. 
Migration  flows  have  started  to  increase  since 
2017  but  their  positive  impact  has  become  more 
evident  only  recently.  This  is  also  confirmed  by 
recent  national  data  showing  an  increase  in  the 

9 

-4-3-2-10123456200420052006200720082009201020112012201320142015201620172018%Nominal compensation growth consistent with constant UCL-based REERPrediction based on inflation, productivity and unemploymentActual nominal compensation growth   
1. Economic situation and outlook* 

number of registered foreign residents in Portugal. 
The figure reached 477,472 at the end of 2018, up 
by  14.6%  from  a  year  earlier,  which 
is  a 
significantly higher rate of growth than in previous 
years.  A  substantial  proportion  of  art  of  the 
registrations 
Portuguese-speaking 
from 
countries,  so  their  integration  into  the  labour 
market  could  be  relatively  smooth.  However,  the 
data currently available data do not provide a clear 
picture of the impact of migration on the structure 
of labour skills. 

are 

Social developments   

in  recent  years,  but 

Social  conditions  in  Portugal  have  improved 
substantially 
some 
indicators  still  lag  behind  the  EU  average. 
Income  inequality  continues  to  fall  and  is  now 
around  the  EU  average.  The  proportion  of  people 
at-risk  of  poverty  or  social  exclusion  also 
continued to fall,(3) from 23.3% in 2017 to 21.6% 
in  2018.  This  brought  it  to  slightly  below  the  EU 
average  of  21.9%  for  the  first  time.  However,  the 
risk  of  poverty  faced  by  elderly  people  still  give 
cause  for  concern.  Inequality  of  opportunity  in 
education also remains high. Social transfers have 
comparatively  little impact on poverty in Portugal 
(see Section 4.3).  

Income  inequality  has  been  declining  in  recent 
years  and  is  now  close  to  EU  average.  In  2018, 
the ratio of incomes earned by the top 20 % to the 
bottom 20 % of the income distribution decreased 
from 5.7 to 5.2, down from a peak of 6.2 in 2014, 
getting to the EU average of 5.2. At the same time, 
the  Gini  coefficient  (4)  decreased  from  33.5  in 
2017 to 32.1 in 2018, and is now below pre-crisis 
levels, yet remained above the EU average (30.9). 
The  recent improvement  was  mostly driven by an 
increase  in  the  share  of  income  earned  by  the 
lowest  part  of  the  distribution,  possibly  related  to 
improving labour market conditions, the impact of 
recent minimum wage increases on lower incomes 
and improved adequacy of some benefits.  

(3)  Provisional data from the National Statistics Office (INE): 
the Survey on Income and Living Conditions held in 2019 
on  previous  year  incomes  shows  that  17.2%  of  the 
population  was  at-risk-of-poverty  in  2018,  one  decimal 
point less than in 2017.  

(4)  The  Gini  coefficient  ranges  between  0  and  100.  Lower 

values indicate higher equality.  

External position and competitiveness 

The current account continued to deteriorate in 
2019.  Following  a  decline  in  the  surplus  from 
1.0%  of  GDP  in  2017  to  0.1%  in  2018  (national 
account terms), the current account is projected to 
post  a  deficit  of  0.4%  of  GDP  in  2019,  which  is 
close to the deficit explained by fundamentals. For 
the second  year in a row, imports increased  much 
faster  than  exports  in  2019.  The  pattern  is  set  to 
continue  over  the  forecast  period,  triggering  a 
significant  deterioration  in  the  country’s  external 
balance.  This  reflects  a  significant  and  widening 
gap  in  trade  in  goods.  Net  flows  in  primary  and 
secondary  income  are  expected  to  benefit  from 
lower  interest  payments  to  foreign  creditors  and 
higher receipts from EU structural funds. Trade in 
services  is  projected  to  retain  a  stable  surplus  of 
around 8% of GDP throughout the whole forecast 
period  benefiting  from  a  continuous  growth  in 
tourism.  Despite  the  expected  increase  in  the 
current  account  deficit,  exports  are  still  projected 
to  grow  faster  than  GDP.  However,  the  gains  in 
market shares achieved in recent years are likely to 
diminish significantly. 

Investment  outpaces  savings.  The  recent  and 
projected  declines  in  current  account  balances  are 
related  to  the  recovery  of  domestic  investment, 
which  slightly  outpaced  increases  in  domestic 
savings. Investment growth accelerated after 2016, 
driven  mainly  by  higher  construction.  While  the 
difference between savings and investment in 2018 
narrowed  down  to  only  0.2%  of  GDP,  it  is 
projected to worsen further in 2019-2021, reaching 
-1%  of  GDP  at  the  end  of  the  period.  Thus,  the 
current  projections 
the  expected 
imply 
increase  in  savings  would  be  insufficient  to 
simultaneously enable a strong investment  growth 
and a satisfactory dynamics of unwinding the high 
external stock of imbalances. 

that 

imports  of 

The trade balance deterioration is closely linked 
with 
investment  goods.  The 
breakdown  of  trade  by  investment,  consumer  and 
intermediary goods, shows that the deterioration in 
2018 and especially in 2019 was largely driven by 
increased imports of investment goods. This could 
improve the country’s growth and export potential 
in  the  long  term.  At  the  same  time,  the  trade  in 
consumer  goods  improved  from  a  deficit  of  1.8% 
of GDP in 2017 to 1.5% in 2018 and 1.1% in 2019, 
to  balance  of  payments  data  and 
according 

10 

                                                           
1. Economic situation and outlook* 

in 

-35% 

imbalance  procedure 

most  negative  in  the  EU  and  significantly  beyond 
the 
the  headline 
threshold  of 
macroeconomic 
(MIP) 
scoreboard and the country’s  specific threshold of 
-48%.  Moreover,  the  pace  of  adjustment  is  set  to 
diminish,  as  the  current  account  is  projected  to 
worsen  further,  reflecting  the  robust  domestic 
demand and weaker prospects in global trade. The 
aforementioned  estimates  on  the  current  account 
balance  show  that  it  will  still  be  better  than  the 
estimated  deficit  of  -4.1%  of  GDP  required  to 
stabilise  the  NIIP  but  significantly  below  the 
estimated  surplus  of  2.2%  needed  to  reach  the 
NIIP country-specific threshold in 10 years. 

Graph 1.5:  Current Account and Net International 

Investment Position 

Source: Eurostat 

that 

the  NIIP  shows 

The  risk  profile  of  NIIP  is  improving.  The 
structure  of 
the  risks 
associated with the type and duration of liabilities 
are diminishing, although a large  part of the NIIP 
(about  60%)  is  composed  of  marketable  debt.  On 
the one hand, it reflects the reduced risk-premium 
on government debt, accounting for nearly 60% of 
the  NIIP.  The  structure  of  the  government  debt 
benefitted  from  active  management  resulting  in 
increased  average  maturity  and  smoothing  of  the 
redemption  profile,  as  well  as  the  continuous 
improvement  in  the  country’s  credit  rating  and 
government  bond  spreads.  On  the  other  hand,  the 
foreign  direct  investment  (FDI)  component  of  the 
NIIP increased from 36.8% of the NIIP at the end 
of 2017 to 38.1% at the end of 2018 and 39.2% at 
the end of June 2019. This implies that most of the 
external 
the  private  sector  are 
generated by non-defaultable instruments. Overall, 
the  NIIP  excluding  non-defaultable  instruments 
accounted for  -57.1% of GDP at the end of 2018. 
While having improved from a trough of -82.1% at 

liabilities 

in 

estimates  for  2019.  The  deficit 
in 
equipment  increased  from  1.7%  of  GDP  to  4.7% 
for the same period, which exceeds the magnitude 
of the overall trade balance deterioration.  

trade 

in 

Graph 1.4: 

Balance of trade with goods 

Source: Eurostat 

Tourism  continues  to  support  the  external 
balance.  Despite  some  slowdown  in  2018  and 
2019, net inflows from foreign tourism continue to 
make  a  significant  contribution  to  Portugal’s 
exports. Measured by travel receipts in the balance 
of  payments,  foreign  tourism  accounted  for  about 
8%  of  GDP  in  2018  and  nearly  19%  of  the 
country’s total exports of goods and  services. Net 
travel  revenues  accounted  for  a  surplus  of  6%  of 
GDP  in  2018  and  the  share  is  estimated  to  have 
increased slightly in 2019. Both in 2018 and 2019, 
tourism grew faster than GDP, although the rate of 
growth  was  significantly  lower  than  in  previous 
years. By the end of 2017, growth in tourism was 
also  helped  by  developments  in  some  competing 
travel  destinations.  These  factors  however  faded 
away  in  2018  and  2019  highlighting  the  sector’s 
is 
exposure 
expected  that  the  growth  achieved  in  2018-2019 
could  be  maintained 
term, 
supported  by  global  trends  in  tourism  and  the 
projected expansion of the aviation sector. 

to  external  risks.  Nontheless, 

the  medium 

in 

it 

The  pace  of  reducing  external  liabilities  is 
slowing.  The  stock  of 
international 
investment position (NIIP) improved from revised 
-109.9% of GDP at the end of 2017 to -105.6% at 
the  end  of  2018  and  further  on  to  -101.5%  until 
September  2019.  However,  it  remains  one  of  the 

the  net 

11 

-16.0-14.0-12.0-10.0-8.0-6.0-4.0-2.00.0200820092010201120122013201420152016201720182019eTotalConsumerEquipment% of GDP-14-12-10-8-6-4-2024-140-120-100-80-60-40-20020402000200120022003200420052006200720082009201020112012201320142015201620172018Net direct investmentNet international investment position (NIIP)Marketable debt (portfolio debt instruments, other investment and reserve assets) (net)Current account balance (rhs)% of GDP% of GDP   
   
1. Economic situation and outlook* 

the end of 2012, it is still one of the lowest values 
across the EU countries. 

Graph 1.6: 

Return on equity (%), domestic banks 

Unit  labour  costs  continue  to  grow.  However, 
pressure  on  cost  competitiveness  remains  modest 
as  unit  labour  costs  continue  to  move  broadly  in 
line  with  trading  partners,  owing  to  sustained 
modest  wage  developments.  As  regards  non-cost 
indicators  of  competitiveness  and  total  factor 
productivity,  Portugal  has  continued 
to  gain 
market share in recent years, although the trend is 
declining.  The  export  market  share  in  volume 
terms increased by 0.4% in 2018. Although growth 
slowed  from  2.8%  in  the  previous  year,  there  had 
been  a  sustained  improvement  since  2010.  In 
nominal terms, the share of exports in world trade 
grew  by  2.3%  in  2018,  slowing  from  3.2%  in 
2017.  Over  a  five-year  period,  the  accumulated 
growth  in  the  market  share  is  estimated  at  9.4%. 
However, the share of high-technology products in 
total  exports  dropped  to  4.0%  in  2018  from  4.5% 
in  2017.  While  this  ratio  improved  in  the  longer-
term  basis,  it  was  the  lowest  in  the  EU  in  2018, 
indicating  a  structural  weakness  of  the  economy 
associated  with  specialisation  in  low-value-added 
sectors (see chapter 4.4). 

Financial sector 

Portuguese banks have made significant further 
progress 
in  reducing  non-performing  loans 
(NPLs),  on  the  basis  of  sales,  write-offs  and 
cures. All major banks now actively participate in 
the  secondary  market.  Still, 
the  NPL-ratio 
remained the third highest in the euro area. Despite 
previous reforms, the efficiency of the legal system 
remains a concern, as lenders’ inability to manage 
collateral in an efficient manner is weighing on the 
prices  investors  are  willing  to  pay  for  distressed 
debt.  Banks  continue  to  be  profitable  and  capital 
ratios  are  above  regulatory  requirements,  but 
stronger  buffers  would  make  banks  more  resilient 
to a weakening in macroeconomic conditions or an 
increase 
introduced 
macro-prudential  limits  to  loan-to-value  and  debt 
have 
service-to-income 
contributed to an improvement in credit  standards 
(see Sections 3 and 4.2). 

in  risk  premia.  Recently 

appear 

ratios 

to 

Source: European Central Bank 

Private indebtedness 

Private 
indebtedness  continued  to  decline. 
Consolidated private debt dropped from 162.2% of 
GDP  at  the  end  of  2017  to  155.4%  at  the  end  of 
2018.  The  latest  data  for  2019,  available  only  in 
non-consolidated  terms,  show  a  similar  pace  of 
decline,  reflecting  a  broadly  stable  debt  stock  in 
absolute terms while the debt ratio is pulled down 
by the growth in nominal GDP. In absolute terms, 
the debt level is expected to slightly increase over 
the  medium  term,  driven  mainly  by  lending  to 
retain  a 
households  where  consumer 
significant  pace  of  growth.  On  the  other  hand, 
economic  growth  is  projected  ensure  that  private 
sector 
increases  at  an  overall 
adequate pace. 

indebtedness 

loans 

The  corporate  sector  is  deleveraging  slightly 
faster  than  households,  although  the  difference 
has  narrowed  since  the  start  of  2019.  The  debt 
ratios remain on a downward trend across most of 
the business sectors. The breakdown of data by the 
size of corporate debtors reveals similar dynamics 
for  small,  medium  and  large  firms.  The  stable 
stock  of  corporate  debt  shows  that  the  large 
increase  in  investment  up  to  September  2019  was 
financed  largely  by  corporate  profits  and  other 
non-debt  sources,  most  likely  linked  with  foreign 
direct  investments.  Yet,  debt  ratios  remain  above 
the  estimated  country  specific  prudential  and 
fundamental  thresholds.  For  households,  the  debt 

12 

-15-10-505101520200720082009201020112012201320142015201620172018PortugalEUEuro Area%   
1. Economic situation and outlook* 

benefiting from a major positive one-off impact(7), 
while the structural balance is projected to remain 
broadly unchanged. Risks to the fiscal outlook are 
to 
the  downside  and  are 
tilted 
uncertainties  surrounding 
the  macroeconomic 
outlook and the potential deficit-increasing impact 
of further bank support measures. 

linked 

to 

The  public  debt-to-GDP  ratio  is  projected  to 
continue  on  its  gradual  downward  path,  albeit 
at  a  slower  pace.  After  falling  by  3.8  pps  to 
122.2%  in  2018,  according  to  the  Commission’s 
latest  forecast,  the  public  debt-to-GDP  ratio  is 
projected  to  decline  further  to  119.2%  in  2019, 
116.7%  in  2020  and  113.7%  in  2021,  mainly 
thanks 
to  continuous  primary  surpluses  and 
favourable growth-interest rate differentials. While 
the  projected  lower  pace  of  decrease  in  the  debt 
ratio below 3 pps in 2019 and 2020 is mostly due 
to  higher  stock-flow  adjustments, 
the  slight 
acceleration  in  2021  mainly  reflects  the  expected 
higher primary surplus thanks to one-off revenue. 

Portugal  is  making  progress  towards  achieving 
the  Sustainable  Development  Goals  (SDGs). 
Areas where progress is more evident refer to SDG 
1  “No  Poverty”,  with  all  its  associated  indicators 
showing an improving performance during the last 
five  years.  Relatively  similar  performances  are 
found  for  SDG  16  “Peace,  Justice  and  Strong 
Institutions” and SDG 9 “Industry, Innovation and 
Infrastructure”.  Notwithstanding  this  improving 
performance,  current  levels  for  some  of  these 
indicators  are  significantly  lower  than  the  EU 
average,  particularly  for  basic  needs  related  to 
dwellings (SDG 1), the perceived independence of 
the justice system (SDG 16) and R&D expenditure 
(SDG  9).  Goals  recording  comparatively  more 
include  SDG  13  “Climate 
modest  progress 
Action”,  with  Portugal 
recent 
deteriorating  trend  on  SDG  13  indicators  for 
greenhouse  gas  (GHG)  emissions,  primary  and 
final  energy  consumption.  These  two  indicators 
also  explain  the  more  subdued  progress  towards 
SDG 7 “Affordable and Clean Energy”, which add 
to the recent increase in energy import dependency 
of the country. 

showing 

a 

(7)  In 2021, the headline balance is projected to benefit from a 
strong  positive  one-off  impact  of  0.4%  of  GDP  from  the 
recovery  of  the  prepaid  margin  on the  financial assistance 
loans  by  the  European  Financial  Stability  Facility,  only 
partially offset by an impact 0.2% of GDP from the Novo 
Banco contingent capital mechanism. 

ratio  dropped  from  69.2%  of  GDP  at  the  end  of 
2017  to  66.6%  at  the  end  of  2018  relative  to 
prudential  and  fundamental  levels  estimated  at 
38%  each.  For  corporates,  the  debt  ratio  dropped 
from 93.0% of GDP to 88.9% relative to prudential 
and  fundamental  benchmarks  of  57%  and  65% 
respectively. 

Public finances 

to 

Public 
from 
finances  continue  benefitting 
resilient  domestic  demand  and  favourable 
the 
conditions.  According 
financing 
Commission’s  latest  forecast,  the  public  headline 
deficit is projected to have decreased from 0.4% of 
GDP in 2018 to a small deficit of 0.1% of GDP in 
2019,  helped  by  cyclical  revenue,  decreasing 
interest  expenditure  and 
lower-than-budgeted 
public  investment(5).  The  headline  balance  net  of 
one-offs (6) is set to have improved from a surplus 
of  0.2%  of  GDP  in  2018  to  a  surplus  of  0.4%  of 
GDP  in  2019.  The  structural  balance  is  projected 
to have improved by about 0.1% of GDP in 2019, 
mainly 
interest 
expenditure, to a deficit of 0.5% of GDP, while the 
structural  primary  balance  is  expected  to  have 
remained  broadly  stable  at  a  surplus  of  around 
2.6% of GDP last year. 

the  decline 

reflecting 

in 

According  to  the  Commission’s  latest  forecast, 
the  structural  balance  is  expected  to  gradually 
approach  equilibrium  in  2020  and  2021.  The 
forecast  projects  the  public  headline  balance  to 
improve  to  a  small  surplus  of  0.1%  of  GDP  in 
2020. At the same time, the headline balance net of 
one-offs  is  set  to  improve  slightly  to  a  surplus  of 
0.5%  of  GDP  in  2020.  On  the  back  of  further 
savings  in  interest  expenditure,  the  structural 
balance is projected to improve by 0.2% of GDP in 
2020.  Looking  ahead  into  2021,  according  to  the 
Commission’s latest forecast, the headline balance 
is  set  to  turn  into  a  surplus  of  0.7%  of  GDP 

(5)  To  assess  the  updated  Draft  Budgetary  Plan  for  2020 that 
was  submitted  by  Portugal  on  17  December  2019,  the 
Commission produced an ad-hoc forecast, in particular by 
updating its 2019 autumn forecast to take into account the 
information  in  the  updated  Plan.  Unless  stated  otherwise, 
the budgetary projections in this report correspond to such 
a  Commission  ad-hoc  forecast  of  December  2019  and, 
thus, do not reflect data only made available afterwards. 
(6)  The  one-off  impact  in  both  years  results  mainly  from 
the  Novo  Banco  contingent  capital 

activations  of 
mechanism. 

13 

                                                           
                                                           
1. Economic situation and outlook* 

Table 1.1: 

Key economic and financial indicators 

(1) NIIP excluding direct investment and portfolio equity shares         
(2) domestic banking groups and stand-alone banks, EU and non-EU foreign-controlled subsidiaries and EU and non-EU 
foreign-controlled branches.         
(3) The tax-to-GDP indicator includes imputed social contributions and hence differs from the tax-to-GDP indicator used in the 
section on taxation         
(4) Defined as the income tax on gross wage earnings plus the employee's social security contributions less universal cash 
benefits, expressed as a percentage of gross wage earnings         
Source:  Eurostat and ECB as of 4-2-2020, where available; European Commission for forecast figures (Winter forecast 2020 for 
real GDP and HICP, ad-hoc forecast 2019 for budgetary indicators, Autumn forecast 2019 otherwise) 

14 

2004-072008-122013-1620172018201920202021Real GDP (y-o-y)1.7-1.40.93.52.42.01.71.7Potential growth (y-o-y)1.0-0.30.11.41.71.81.91.9Private consumption (y-o-y)2.0-1.61.52.13.1...Public consumption (y-o-y)1.4-1.1-0.30.20.9...Gross fixed capital formation (y-o-y)0.6-7.71.411.55.8...Exports of goods and services (y-o-y)5.61.55.58.43.8...Imports of goods and services (y-o-y) 5.7-2.66.48.15.8...Contribution to GDP growth:Domestic demand (y-o-y)1.8-2.81.13.23.1...Inventories (y-o-y)0.3-0.10.10.10.1...Net exports (y-o-y)-0.41.5-0.30.2-0.8...Contribution to potential GDP growth:Total Labour (hours) (y-o-y)-0.3-1.00.00.91.00.80.70.6Capital accumulation (y-o-y)0.80.3-0.2-0.10.00.20.30.4Total factor productivity (y-o-y)0.50.50.30.60.70.80.90.9Output gap-0.4-1.5-2.90.91.61.71.51.4Unemployment rate8.712.013.69.07.06.35.95.6GDP deflator (y-o-y)3.00.61.71.51.61.41.51.6Harmonised index of consumer prices (HICP, y-o-y)2.51.90.41.61.20.31.01.3Nominal compensation per employee (y-o-y)3.30.40.82.32.53.22.82.8Labour productivity (real, person employed, y-o-y)1.80.60.50.20.1...Unit labour costs (ULC, whole economy, y-o-y)1.4-0.20.22.12.42.21.71.6Real unit labour costs (y-o-y)-1.5-0.8-1.40.60.80.80.1-0.1Real effective exchange rate (ULC, y-o-y)0.0-2.0-0.52.11.7-0.9-0.6-0.2Real effective exchange rate (HICP, y-o-y)0.4-0.8-0.40.70.8-1.8-0.8-0.4Net savings rate of households (net saving as percentage of net disposable income)1.81.5-0.6-2.2-2.4...Private credit flow, consolidated (% of GDP)13.84.4-3.12.20.8...Private sector debt, consolidated (% of GDP)173.6203.4185.0162.2155.4...of which household debt, consolidated (% of GDP)81.590.679.469.266.6...of which non-financial corporate debt, consolidated (% of GDP)92.1112.8105.693.088.8...Gross non-performing debt (% of total debt instruments and total loans and advances) (2)1.24.112.511.07.6...Corporations, net lending (+) or net borrowing (-) (% of GDP)-4.5-1.73.52.9-0.2-0.7-0.9-1.2Corporations, gross operating surplus (% of GDP)19.820.922.122.321.421.521.521.4Households, net lending (+) or net borrowing (-) (% of GDP)1.33.02.81.91.81.61.51.0Deflated house price index (y-o-y)-1.6-2.92.97.68.8...Residential investment (% of GDP)5.73.72.52.83.0...Current account balance (% of GDP), balance of payments-9.4-8.00.81.20.4-0.1-0.4-0.7Trade balance (% of GDP), balance of payments...1.50.8...Terms of trade of goods and services (y-o-y)-0.10.01.9-0.8-0.30.10.00.0Capital account balance (% of GDP)...0.91.0...Net international investment position (% of GDP)-77.1-107.8-118.3-109.9-105.6...NENDI - NIIP excluding non-defaultable instruments (% of GDP) (1)-44.3-71.3-73.2-59.5-57.1...IIP liabilities excluding non-defaultable instruments (% of GDP) (1)175.7213.4200.4180.3175.7...Export performance vs. advanced countries (% change over 5 years)6.6-3.10.611.17.2...Export market share, goods and services (y-o-y)-2.4-3.72.63.22.31.4-0.4-0.8Net FDI flows (% of GDP)...-3.5-2.5...General government balance (% of GDP)-4.8-7.8-4.7-3.0-0.4-0.10.10.7Structural budget balance (% of GDP)..-2.1-1.4-0.6-0.5-0.3-0.3General government gross debt (% of GDP)71.4101.4131.8126.0122.2119.2116.7113.4Tax-to-GDP ratio (%) (3)34.434.336.936.537.237.337.437.5Tax rate for a single person earning the average wage (%) (4)22.422.327.727.526.6...Tax rate for a single person earning 50% of the average wage (%) (4)13.911.511.011.011.0...forecast 
 
 
  
 
2.  PROGRESS WITH COUNTRY-SPECIFIC RECOMMENDATIONS 

of 

all 

69% 

Since  the  start  of  the  European  Semester  in 
2011, 
country-specific 
recommendations  addressed  to  Portugal  have 
recorded  at  least  ‘some  progress’.(8)  31%  of 
these  CSRs  recorded  ‘limited’  or  ‘no  progress’  
(see  Graph  2.1).  Most  progress  was  observed  for 
CSRs  associated  with  challenges  in  the  labour 
market, education and social policies, the financial 
sector,  and 
justice  system.  Progress  on 
challenges  associated  with  fiscal-structural  issues 
and  certain  aspects  of  the  business  environment 
have been more limited. Further effort is warranted 
to effectively tackle these challenges. 

the 

Graph 2.1: 

Level of implementation of 2011-2019 CSRs 

(1) The overall assessment of the country-specific 
recommendations related to fiscal policy excludes 
compliance with the Stability and Growth Pact. 
(2) 2011 annual assessment: Different CSR assessment 
categories. 
(3) The multiannual CSR assessment looks at the 
implementation until 2020 Country Report since the CSRs 
were first adopted. 

Source: European Commission 

limited  progress 

implementation  of 

in 
Portugal  has  made 
addressing  challenges  associated  with  fiscal 
policy and fiscal governance. There are delays in 
the 
the  2015  Budgetary 
Framework  Law,  in  particular  in  the  areas  of 
medium-term  and  programme-based  budgeting 
(linked to CSR1 sub-part on improving the quality 
prioritising 
of 
accrual 
growth-enhancing 

spending) 

finances 

public 

and 

by 

(8)  For  the  assessment  of  other  reforms  implemented  in  the 

past, see in particular Section 4. 

accounting  (linked  to  the  CSR1  sub-part  on 
strengthening  overall  expenditure  control,  cost 
efficiency  and  adequate  budgeting).  The  ongoing 
bottom-up  review  of  public  expenditure  has 
generated  overall  modest  efficiency  savings. 
Despite  efficiency-improving  efforts  in  the  health 
sector, hospital arrears remain a source of concern. 
Although  efforts  were  made  to  improve  the 
financial  sustainability  of  state-owned  enterprises, 
the  objective  of  attaining  an  overall  balanced 
financial  position  has  been  repeatedly  moved 
forward  and  is  unlikely  to  have  been  achieved  in 
2019.  While  past  reforms  had 
its 
long-term  sustainability,  recent  direct  increases  in 
pension  spending  and  demographic  ageing  are 
exerting  growing  pressure  on  the  pension  system. 
Progress  has  been  made  towards  improving  tax 
compliance  and  making 
tax  collection  more 
efficient, while there is still scope to make the tax 
system more business-friendly. 

improved 

There  is  some  progress  in  tackling  a  persistent 
share of temporary employment. Stemming from 
the 2018 tripartite agreement new measures are in 
force  since  October  2019  to  tackle  labour  market 
segmentation. Furthermore, some progress has also 
been  registered  in  improving  the  efficiency  of 
active  labour  market  policies  targeting  permanent 
employment, fostering collective bargaining and in 
stepping  up  the  capacity  of  the  labour  authority, 
especially  with 
false 
self-employment. 

to  combating 

regard 

Improving  the  skills  level  of  the  population 
registered  some  progress.  Thanks  to  increased 
participation  in  Qualifica  and  a  wide  range  of 
initiatives through INCoDe.2030, some progress is 
being made in tackling low skills levels. However, 
more  detailed  information  and  project  upscaling 
are  needed 
these 
measures.  Also,  the  Portuguese  government  has 
announced  that  it  will  soon  be  presenting  a 
national  plan  for  adult 
to 
improve literacy levels in low-skilled sectors of the 
population. 

literacy,  designed 

to  amplify 

impact  of 

the 

Some progress has been made in increasing the 
number  of  higher  education  graduates.  The 
government  has  put  in  place  several  measures  to 
ease  the  access  to  higher  education  and  increase 
enrolment  (see  Section  4.3.3).  In  2017/2018, 
student  enrolment  in  the  first  university  courses 

15 

 
   
 
                                                           
2. Progress with country-specific recommendations 

was almost 8% higher than in 2016/2017 (National 
Education  Council,  2019).  The  number  of 
university  students  is  also  growing  in  science  and 
information  technology,  although  they  are  still  a 
small  proportion  of  the  total.  In  2018,  university 
graduates 
information  and  communication 
technologies  accounted  for  2.2%  of  the  total 
number  of  graduates,  while  those  graduating  in 
natural  sciences,  mathematics  and  computing 
accounted for 6.8% of the total.  

in 

The  government  has  announced  its  intention  to 
adopt  a  number  of  measures,  such  as  raising 
awareness  of  and  revising  energy  efficiency 
regulations in industry, buildings and transport. As 
regards 
interconnections,  Portugal  has  been 
actively  involved  in  regional  fora  to  improve  the 
energy  connectivity  of  the  Iberian  Peninsula, 
interconnection 
however 
between  Portugal  (Minho)  and  Spain  (Galicia) 
remains incomplete. 

the  new  electrical 

Portugal  has  made  limited  progress  towards 
improving the effectiveness and adequacy of the 
social  safety  net.  The  poverty  reduction  capacity 
of social transfers (other than pensions) as well as 
its  adequacy, 
in 
Portugal  (9).  The  new  government  announced 
several measures to be adopted in the coming years 
to address this recommendation. 

remain  comparatively 

low 

innovation.  The 

implementation  of 

Limited  progress  has  been  made  with  focusing 
investment-related economic policy on research 
and 
the 
Portugal  2020  strategy  is  well  underway  and  a 
reprogramming  aimed  at  assigning  additional 
funding 
innovation  was 
conducted  in  2019.  Yet,  further  investments  and 
policy  efforts  are  necessary  in  particular  to  foster 
linkages  between  R&D  actors  and  businesses  and 
support a thriving innovation driven economy. 

investments 

in 

to 

economic 

Limited  progress  has  been  made  with  focusing 
on 
investment-related 
policy 
transport.  There  has  been 
limited  progress 
regarding  the  Connecting  Europe  Facility  projects 
under the 2020 Ferrovia programme. There is also 
limited progress regarding port infrastructure, with 
key investment projects in  Sines (Terminal Vasco 
da Gama) and Barreiro still going through the early 
or  preparatory  stages  of  the  public  tendering 
process.  

Portugal has made some progress on investment 
policy  associated  with  the  low  carbon  and 
energy  transition.  Measures  are  being  taken  to 
increase the use of renewables. In addition, a new 
regulatory framework addressing self-consumption 
and 
help 
decentralise  the  energy  supply.  Progress  has  been 
limited  as  regards  primary  energy  consumption, 
which  has  been  rising  over  the  past  three  years. 

communities 

renewables 

should 

The  share  of  non-performing  loans  declines 
continuously  due  to  strategies  implemented 
over  the  past  years  by  the  authorities  and  the 
concerned  banks.  Since  July  2019,  Portuguese 
lenders  have  the  possibility  to  make  use  of  a 
special  regime  allowing  them  to  transfer  loan 
portfolios  in  bulk  to  other  financial  institutions. 
This should enable a faster and less costly process 
of  selling  NPLs.  Nevertheless,  challenges  related 
to  lengthy  proceedings  remain.  The  legal  and 
judicial  frameworks  are  heavily  affecting  the 
recovery  process  and  the  prospects  for  efficient 
repossession  of  collateral  by  lenders.  The  longer 
the  average  duration  of  recovery  proceedings  and 
the  uncertainty  surrounding  it,  results  in  lower 
market valuations of non-performing assets. 

the 

SIMPLEX+ 

Although  the  overall  administrative  burden  on 
businesses  is  being  reduced,  limited  progress 
has been made with reducing the sector-specific 
burden  on  licensing.  In  recent  years,  several 
measures introduced mainly under the SIMPLEX+ 
programme  have  led  to  improvements  in  the 
business  environment.  New  initiatives  addressing 
the  business  environment  were  launched  in  2019 
through 
and  Capitalizar 
programmes.  However,  limited  progress  has  been 
made  with  reducing  the  sector-specific  burden  on 
licensing.  Reforms  seldom  replace  ex  ante  checks 
by  ex  post  checks.  They  may  even  rely  on 
responsible  declarations  to  replace  the  numerous 
authorisation  schemes  in  place.  Long  procedural 
deadlines for decision and even the absence of tacit 
approval  persist.  Portugal 
is  making  efforts 
the  Structural  Reform  Support 
supported  by 
Programme 
impact 
assessment,  in  particular  with  the  ambition  to 
introduce cost-benefit analysis and to put in place 
an effective consultation system.  

regulatory 

improve 

to 

(9) Joint Employment Report, 2020  

No  progress  has  been  made  with  reducing 
regulatory  restrictions  on  highly  regulated 

16 

                                                           
2. Progress with country-specific recommendations 

progress  has  been  made  towards  improving  the 
effectiveness and adequacy of the social safety net. 
As  regards  CSR  3,  there  has  been  some  progress 
on investment-related policy in the area of energy 
transition, while limited progress for policies in the 
areas  of  research  and  innovation,  and  railway  and 
regards 
port 
the  business 
infrastructure.  As 
there  has  been  some 
environment  (CSR  4), 
progress on increasing the efficiency of insolvency 
and  recovery  proceedings,  as  well  as  on  reducing 
administrative  burden.  However,  limited  progress 
has been made on reducing sector-specific barriers 
to  licensing.  There  has  been  no  progress  with 
removing  regulatory  restrictions  in  professional 
services,  which  remain  largely  sheltered  from 
competition.  

Upon  a  request  from  a  Member  State,  the 
Commission  can  provide  tailor-made  expertise 
via the Structural Reform Support Programme 
implement  growth-
to  help  design  and 
enhancing  reforms.  Since  2017,  20  projects  in 
Portugal have benefited from such support. Several 
projects  were  implemented  in  2019.  For  instance, 
the  Portuguese 
supported 
the  Commission 
authorities in implementing the Budget Framework 
Law  and  improving  the  performance  of 
the 
strategic water supply and sanitation sector plan — 
PENSAAR  2020.  Support  with  designing  the 
national  adult  literacy  plan  continued  in  2019. 
Work also started on developing capacity to assess 
the  impact  of  structural  reforms  and  forecast 
investment  in  the  circular  economy  in  order  to 
promote the efficient use of resources.  

professions,  which  remain  sheltered 
from 
competition.  No  reforms  to  reduce  regulatory 
restrictions  on  highly  regulated  professions  have 
been  implemented  or  even  announced.  This  is 
despite 
repeated 
recommendations  and  recommendations  made  by 
the  OECD  and 
the  Portuguese  competition 
authority.  

Commission’s 

the 

the 

the  efficiency  of 

Portugal  has  made  some  progress  towards 
improving 
tax  and 
administrative courts. Proceedings before tax and 
administrative  courts  remain  among  the  lengthiest 
in the EU. Measures designed to introduce further 
improvements  continue 
implemented, 
including  rapid  reactions  teams  to  deal  with  case 
backlogs,  and  the  establishment  of  specialised 
chambers, both in administrative and tax matters. 

to  be 

the 

2019 

limited  progress 

in 
Portugal  has  made 
country-specific 
addressing 
recommendations.  Limited  progress  has  been 
made  with  respect  to  the  fiscal-structural  part  of 
CSR  1,  with  the  government  continuing  to  tackle 
expenditure  control,  cost  efficiency  and  adequate 
budgeting.  However,  hospital  arrears  have  again 
begun  to  rise  at  a  steady  rate.  Progress  with 
improving  the  financial  sustainability  of  state-
owned  enterprises  which  struggle  to  achieve  a 
balanced  financial  position  has  also  been  limited. 
There  has  been  some  progress  in  addressing  CSR 
2,  with  Portugal  adopting  measures  to  address 
labour  segmentation.  There  has  also  been  some 
progress  on  skills  and  education,  thanks  to  new 
policy  measures 
to  higher 
education, and the implementation of programmes 
such  as  Qualifica  and  INCoDe.2030.  Yet,  limited 

improving  access 

17 

  
2. Progress with country-specific recommendations 

Table 2.1: 

Assessment of 2019 CSR implementation (*) 

(Continued on the next page) 

18 

Commitments  Summary assessment   Limited progress in addressing CSR 1 CSR 1: Achieve the medium-term budgetary objective in 2020, taking into account the allowance linked to unusual events for which a temporary deviation is granted. Use windfall gains to accelerate the reduction of the general government debt ratio. Improve the quality of public finances by prioritising growth-enhancing spending while strengthening overall expenditure control, cost efficiency and adequate budgeting, with a focus in particular on a durable reduction of arrears in hospitals. Improve the financial sustainability of state-owned enterprises, while ensuring more timely, transparent and comprehensive monitoring.  Limited progress has been achieved in improving the quality of public finances with a focus on a durable reduction in hospital arrears.   Limited progress in improving the financial sustainability of state-owned enterprises.   Some progress in addressing CSR 2 CSR 2: Adopt measures to address labour market segmentation. Improve the skills level of the population, in particular their digital literacy, including by making adult learning more relevant to the needs of the labour market. Increase the number of higher education graduates, particularly in science and information technology. Improve the effectiveness and adequacy of the social safety net.  Some progress adopting measures to address labour market segmentation.  Some progress improving the skills level of the population, in particular their digital literacy.   Some progress increasing the number of higher education graduates, particularly in science and information technology.  Limited progress improving the effectiveness and adequacy of the social safety net.   Limited progress in addressing CSR 3 CSR 3: Focus investment-related economic policy on research and innovation, railway transport and port infrastructure, low carbon and energy transition and extending energy interconnections, taking into account regional disparities.  Limited progress on investment-related policies on research and innovation.  Limited progress on policies for railway and port infrastructure.   Some progress on policies for low carbon and energy transition and extending energy interconnections.   
 
  
 
2. Progress with country-specific recommendations 

Table (continued) 

Source: European Commission 

(*)  The  assessment  of  CSR  3  does  not  take  into  account  the  contribution  of  the  EU  2021-2027  cohesion  policy  funds.  The 
regulatory framework underpinning the programming of  the 2021-2027 EU cohesion policy funds has not yet been adopted 
by the co-legislators, pending inter alia an agreement on the multiannual financial framework. 

19 

 Limited progress in addressing CSR 4 CSR 4: Allow for a swifter recovery of the collateral tied to non-performing loans by increasing the efficiency of insolvency and recovery proceedings. Reduce the administrative and regulatory burden on businesses, mainly by reducing sector-specific barriers to licensing. Develop a roadmap to reduce restrictions in highly regulated professions. Increase the efficiency of administrative and tax courts, in particular by decreasing the length of proceedings.  Some progress allowing for a swifter recovery of the collateral tied to non-performing loans by increasing the efficiency of insolvency and recovery proceedings.  Limited progress reducing the administrative and regulatory burden on businesses, mainly by reducing sector-specific barriers to licensing.  No progress developing a roadmap to reduce restrictions in highly regulated professions.  Some progress increasing the efficiency of administrative and tax courts, in particular by decreasing the length of proceedings.   
 
 
  
 
 
2. Progress with country-specific recommendations 

Box 2.1: EU funds and programmes to address structural challenges and to foster growth 
and competitiveness in Portugal 

Portugal is one of the countries benefiting most from EU support. Its financial allocation from 
the EU cohesion policy funds (1) under the current Multiannual Financial Framework amounts to 
€27.6  billion,  equivalent  to  around  2.0%  of  the  country’s  annual  GDP.  By  the  end  of  2019, 
Portugal had allocated some €28.6 billion (more than the total amount planned) to specific projects 
and spent € 13.0 billion (2), showing a level of implementation well above average. 

While  bringing  a  more  harmonious  development  through  reducing  economic,  social  and 
territorial  disparities,  EU  Cohesion  Policy  funding  significantly  supports  structural.  In 
Portugal, the Cohesion Policy programmes allocated €6.7 billion for smart growth, €4.9 billion for 
sustainable  growth  and  transport,  and  €9  billion  for  inclusive  growth.  In  2019,  following  a 
performance review (3),€1.4 billion was made available for Portugal within performing priorities. 

EU  Cohesion  Policy  is  contributing  to  transform  the  Portuguese  economy  by  promoting 
growth  and  employment.  By  2019,  investment  driven  by  the  European  Regional  Development 
Fund  had  already  provided  support  for  around  14,500  companies.  This  in  turn  directly  created 
over  16,900  jobs.  The  Fund  also  supported  investment  to  reduce  energy  consumption  in  public 
buildings  by  335  million  KWh/year  and  expand  additional  waste  management  capacity  to  cope 
with a further 333,000 tonnes/year. Similarly, Cohesion Policy supported projects contributing to 
the  reduction  of  greenhouse  gas  emissions  by  more  than  97,000  tonnes/year  of  CO2-equivalent. 
Funds  also  financed  modernisation  of  schools,  benefiting  over  34,000  pupils  and  provided 
improved  health  services  for  3.6  million  people.  Additionally,  the  European  Social  Fund  (ESF) 
supported  28,000  employees  and  6,000  SMEs  through  in-work  training  programmes,  helped 
550,000  unemployed  and  400,000  employed  people  into  short-term  training  modules,  supported 
the integration of 84,000 young people into the labour market and contributed to the reduction of 
early  school  leaving  providing  support  to  over  36,000  young  students  and  55,000  teachers  and 
other education professionals and helped in hiring over 200 psychologists to improve the quality 
of education. 174,000 students attended ESF supported vocational education and training courses, 
thus strengthening their skills set and employability. 

Agricultural  and  fisheries  funds  and  other  EU  programmes  also  contribute  to  addressing 
investment needs. Including the national co-financing, the European Agricultural Fund for Rural 
Development  makes  €5  billion  available  and  the  European  Maritime  and  Fisheries  Fund  makes 
€502 million available. Portugal also benefits from other EU programmes, such as the Connecting 
Europe  Facility,  which  allocated  €715  million  in  EU  funding  to  specific  projects  on  strategic 
transport networks, and Horizon 2020, which allocated €771 million. 

EU funding helps mobilise significant amounts of private investment. By the end of 2018, the 
European  Structural  and  Investment  Funds  (4)  alone  mobilised  additional  capital  by  3.4% 
committing about €992 million in the form of loans, guarantees and equity (5).  

EU  funds  already  invest  substantial  amounts  in  actions  in  line  with  the  Sustainable 
Development Goals. In Portugal, the European Structural and Investment Funds support 13 of the 
17 SDGs and up to 94% of expenditure contributes to achieving these goals. 

(1)  European  Regional  Development  Fund,  Cohesion  Fund,  European  Social  Fund,  Youth  Employment  Initiative, 

including national co-financing. 

(2)  https://cohesiondata.ec.europa.eu/countries/PT 
(3)  The  performance  review  is  regulated  by  Art  22  of  Regulation  (EU)  No  1303/2013,  whereby  5  –  7  %  of  overall 
resources  allocated  are  made  available  for  the  performing  priority  axes  of  the  operational  programmes.  The  amount 
includes national co-financing. 

(4)  European Regional Development Fund, Cohesion Fund, European Social Fund, European Agricultural Fund for Rural 

Development Fund and European Maritime and Fisheries Fund 

(5)  Member States’ reporting on financial instruments based on Article 46 Regulation 1303/2013, cut-off date 31/12/2018. 

20 

 
 
 
 
 
 
3.  SUMMARY OF THE MAIN FINDINGS FROM THE MIP IN-

DEPTH REVIEW 

3.1. 

INTRODUCTION 

to  assess 

for  Portugal 

in-depth  review 

The  2020  Alert  Mechanism  Report  concluded 
should  be 
that  a  new 
the 
undertaken 
persistence  or  unwinding  of  the  imbalances 
(European Commission, 2019a). In Spring 2019, 
Portugal  was  identified  as  having  macroeconomic 
imbalances  (European  Commission,  2019a).  The 
imbalances  identified  related  in  particular  to  the 
large  stocks  of  net  external  liabilities,  private  and 
public  debt,  and  a  high  share  of  non-performing 
loans in a context of low productivity growth. This 
chapter summarises the findings of the analyses in 
the  context  of  the  MIP  in-depth  review  that  is 
contained in various sections in this report(10) (11). 

3.2. 

IMBALANCES AND THEIR GRAVITY 

Portugal´s net international investment position 
remains one of the most negative in the EU. As 
of the end of 2018, the NIIP stands at  -105.6% of 
GDP  and  is  significantly  beyond  the  estimated 
prudential and fundamentally-explained thresholds 
of  -48%  and  -25%,  respectively.  That  said,  the 
NIIP  structure  shows  an  improving  risk  profile 
with  non-defaultable  instruments  accounting  for 
54.1% of the NIIP. Nearly 60% of the NIIP stems 
from  government  debt,  whose  structure,  outlook 
and  market  performance  has  improved  over  the 
past  years.  The  remaining  private  liabilities  are 
mostly composed of foreign direct investment. 

Private  debt  is  still  facing  challenges  despite 
large  adjustments.  Consolidated  private  debt  is 
estimated at 155.4% of GDP as of the end of 2018. 
Compared  to  the  peak  in  2012,  the  ratio  is  now 
much closer to the indicative headline threshold of 
133%.  Yet,  the  deviation  is  still  large  judged  by 
country specific indicators. The ratios of corporate 
and  household  debt  stand  at  88.9%  and  66.6% 

(10)  Analyses relevant for the in-depth review can be found in 
the  following  sections:  Economic  situation  and  outlook 
(Section  1);  Public  finances  and  taxation  (Section  4.1); 
Financial  sector  (Section  4.2);  Labour  market,  education 
and  social  policies  (Section  4.3);  and  Competitiveness 
reforms and investment (Section 4.4). 

(11)  An  asterisk  indicates  that  the  analysis  in  the  section 

contributes to the in-depth review under the MIP. 

prudential 

country-specific 

benchmarks(12). 

respectively.  Both  are  significantly  beyond  the 
and 
estimated 
fundamentals-based 
For 
corporates, these benchmarks are estimated at 57% 
and 65%, respectively, and for households at 38% 
each. The legacy of non-performing loans remains 
a  key  weakness  in  the  debt  structure,  particularly 
in the corporate sector. As regards households, the 
high level of indebtedness is also accompanied by 
a relatively low saving rate. 

Public  debt 
the  relevant 
is  well  above 
benchmark  but  risks  have  subsided.  The  public 
debt-to-GDP  ratio  is  projected  to  have  been 
roughly twice as high as the benchmark of 60% in 
2019  and  therefore  risks  still  persist.  However, 
various  factors  have  moved  the  public  debt  to  a 
more  sustainable  position.  This  includes  a  more 
favourable fiscal performance and outlook, as well 
as  a  series  of  rating  upgrades  resulting  in  more 
favourable financing conditions. In addition, active 
debt  management  has  contributed  to  a  longer 
average  debt  maturity  and  a  smoother  debt 
redemption  profile,  while  the  overall  interest  rate 
burden has declined. Recent market developments 
also  show  that  the  Portuguese  sovereign  yields 
have  been  less  volatile  to  external  shocks  and 
spreads have continued to decline. 

Productivity  weighs  on  Portugal’s 
income 
convergence.  Although  Portugal’s  economy  grew 
faster  than  the  EU  average  in  2017  and  2018,  the 
gap  in  the  country’s  labour  productivity  vis-à-vis 
the  EU  average  remained  broadly  stable.  This 
keeps  the  country’s  income  gap  vis-à-vis  the  EU 
average  also  stable  at  about  23%,  measured  in 
purchasing  power  standards  per  capita.  The  gap 
stems from a low, albeit improving, stock of labour 
skills  and  capital  accumulation.  Productivity 
appears also restrained by the specialisation in low 
value  added  sectors  and  the  large  share  of  small 

(12)  Fundamentals-based  benchmarks 

are  derived 

from 
regressions  capturing  the  main  determinants  of  credit 
growth and taking into account a given initial stock of debt. 
Prudential  thresholds  represent  the  debt  threshold  beyond 
which the probability of a banking crisis is relatively high, 
minimising the probability of missed crisis and that of false 
alerts.  Methodologies 
in  European 
Commission  (2017)  and updates  to  the  methodology  have 
been  subsequently  proposed  in  European  Commission 
(2018).  

are  described 

21 

 
                                                           
                                                           
 
3. Summary of the main findings from the MIP in-depth review 

widen  further  to  1.0%  of  GDP  by  2021.  This  is 
well  below  the  current  account  value  required  to 
reach  the  prudential  NIIP  target  over  a  10-year 
period  although  it  is  still  significantly  better  than 
the  value  required  to  stabilise  the  NIIP.  Overall, 
the current projections on the combined impact of 
the  current  and  capital  accounts  suggests  that  the 
NIIP  would  remain  broadly  stable  in  absolute 
terms  until  2021  but  the  ratio  to  GDP  would  be 
still  benefiting  from 
the  expected  economic 
growth,  declining  by  around  three  percentage 
points  per  year.  Consequently,  it  is  expected  that 
the NIIP would only reach the estimated prudential 
threshold of -48% over a period of about 15 years 
(see Table 3.1). On the positive side, the structure 
breakdown  of  the  current  account  shows  that  the 
is  mostly  driven  by 
ongoing  deterioration 
investment  goods  However,  domestic  savings  are 
growing at a slower pace, which would not enable 
further  unwinding  of  external  imbalances  at  a 
satisfactory pace. 

Various  policy  efforts  address  the  imbalances. 
These  include  a  programme  to  strengthen  the 
sustainability  of  the  health  system,  measures  to 
facilitate  a  reduction  in  non-performing  loans  and 
a swifter resolution of insolvency and restructuring 
proceedings,  and  improvements  in  the  business 
environment. The latter include measures to reduce 
the  administrative  burden  and  to  improve  the 
efficiency  of 
system.  Several 
weaknesses in the business environment persist, in 
particular  related  to  regulatory  restrictions  in 
professional 
sector-specific 
services, 
restrictions related to licensing activities. 

justice 

and 

the 

firms.  Portugal’s  share  of  high 
technology 
products  in  exports  was  the  lowest  in  the  EU  in 
2018, 
the  aforementioned  structural 
indicting 
restraints to productivity. 

risks  stem 

House  prices  exceed  the  long-term  average  but 
risks  are  contained.  House  prices  retained  a 
strong  growth  pace  in  2018  and  the  first  half  of 
2019.  The  calculations  for  2018  show  that  prices 
were already above the long-term average and the 
valuation  gap  widened  to  13.9%.  However,  the 
price  to  income  gap  was  only  slightly  positive  at 
from  housing 
1.9%.  Additional 
affordability problems in some regions though they 
are partly mitigated by the country’s large share of 
property  ownership.  The  risks  from  overvaluation 
are also offset by the non-debt nature of financing, 
as  the  stock  of  mortgage  loans  relative  to  GDP  is 
still  on  a  downward  trend.  In  addition,  authorities 
have  introduced  borrower-based  macro-prudential 
measures  aimed  at  improving  credit  standards. 
Overall,  the  increase  in  house  prices  is  seen  as  a 
correction from previously low levels of valuation. 
It  is  currently  not  considered  an  imbalance  but 
warrants close monitoring. 

3.3. 

EVOLUTION, PROSPECTS AND POLICY 
RESPONSES 

The  external  adjustment  is  expected  to  slow 
down substantially.  Although the NIIP improved 
from  its  lowest  value  of  -123.8%  of  GDP  at  the 
end of 2014 to  -105.6% by the end of 2018 and  -
101.5%  by  September  2019, 
current 
projections  on  the  external  flows  point  to  a 
substantial  slowdown  in  the  pace  of  adjustment. 
The current account moved from a surplus of 1.0% 
of  GDP  in  2017  to  0.1%  in  2018  (in  national 
account  terms).    The  flows  worsened  further  in 
2019  and  the  current  account  is  projected  at  a 
deficit  of  0.4%  for  the  whole  year  which  is  to 

the 

Table 3.1: 

Sensitivity analysis: current account balance and net international investment position  

The table above shows the annual average current account balance required to reach a certain NIIP by 2028, based on 
different assumptions for GDP growth, assuming no NIIP valuation effects and a stable capital account set at its median 
forecast over 2019-21 (1.2% of GDP). See also European Commission, 2015, 'Refining the methodology for NIIP-based current 
account benchmarks', LIME Working Group 17 June 2015. 
Source: European Commission calculations 

22 

Low nominal GDP growth (2% avg 2019-28)Baseline scenario (3% avg 2019-28)High nominal GDP growth (4% avg 2019-28)NIIP stabilisation-3.3-4.3-5.3NIIP at -70% of GDP0.6-0.3-1.1NIIP at -48% of GDP3.02.21.5NIIP at -35% of GDP4.43.73.0 
  
 
3. Summary of the main findings from the MIP in-depth review 

improve  the  quality  and  composition  of  public 
finances,  while  containing  the  growing  pressures 
on the expenditure side of the government budget. 

Labour  productivity  improved  marginally  in 
2018.  Portugal’s  labour  productivity  improved 
only  marginally  in  2018,  extending  the  period  of 
sluggish  increase  since  2013.  A  more  significant 
improvement is projected in 2019-2021 along with 
the  rebound  already  recorded  in  the  first  half  of 
2019. Yet, recent productivity dynamics have been 
insufficient  to  push  up  the  country’s  income 
convergence  towards  the  EU  average  and  the 
projected  productivity  gains  are  insufficient  to 
reverse the expected deterioration in the country’s 
external  balance.  Therefore,  policy  efforts  for 
boosting  productivity,  particularly  labour  skills, 
are  helpful  to  improve  Portugal’s  competitiveness 
and potential growth and to accelerate the pace of 
external rebalancing. 

3.4.  OVERALL ASSESSMENT 

imbalances 

trend  and 

Portugal  continues  to  correct  imbalances  but 
the  external  adjustment  is  slowing.  The  process 
of  correcting  macroeconomic 
is 
advancing  at  a  steady  pace  apart  from  some 
slowdown in the external sector. The debt ratios in 
both  the  private  and  public  sector  have  retained  a 
downward 
the  outlook  appears 
favourable. A significant progress is also achieved 
in  reducing  the  stock  of  NPLs  albeit  from  a  high 
base.  On  the  other  hand,  the  pace  of  reducing 
external  liabilities  has  weakened  substantially 
since 2018 due mainly to the deterioration in trade 
with  goods.  On  the  positive  side,  this  setback  is 
fully  driven  by  demand  for  investment  goods, 
which  could  have  a  positive  impact  on  the 
country’s productivity and potential growth in the 
future.  Indeed,  the  current  projections  point  to 
some rebound in labour productivity in 2019-2021, 
following a five-year period of weak performance.  

further 

requires 

Policy progress differs across areas. While there 
are  measures  to  address  hospital  arrears,  debt 
sustainability 
budgetary 
consolidation  and  growth-enhancing  structural 
measures.  Administrative 
and 
efficiency  of  the  justice  system  progress  on  the 
back  of  various  initiatives,  while  reform  action 
lags behind in addressing barriers to competition in 
professional services. 

simplification 

Private  debt 
is  steadily  decreasing.  After 
reaching  a  peak  of  210.6%  of  GDP  at  the  end  of 
2012, the ratio of consolidated private debt to GDP 
dropped to 162.2% at the end of 2017 and 155.4% 
at  the  end  of  2018.  This  indicates  that  close  to 
three quarters of the deviation  from the  indicative 
threshold  of  133%  have  been  corrected.  The 
outlook  is  also  favourable,  as  data  for  2019 
confirm that the process of deleveraging continues, 
driven  mainly  by  positive  denominator  impact  of 
economic growth. Overall, the  pace  of adjustment 
appears  adequate  although  the  gap  relative  to  the 
country-specific thresholds is still  significant.  The 
corporate sector is deleveraging slightly faster than 
households,  although  the  difference  has  narrowed 
since the start of 2019.  

Banks’  asset  quality  has  improved  following 
further  sales  and  restructurings  of  non-
performing 
loan  portfolios.  The  NPL  ratio 
dropped  from  a  peak  of  17.9%  in  the  first  half  of 
2016  to  9.4%  at  the  end  of  2018,  and  further  to 
7.7% at the end of September 2019. All six banks 
with 
ratios  are  actively 
participating  in  the  secondary  market.  The  NPL 
reduction has been achieved on the basis of sales, 
write-offs and loan restructurings. 

the  highest  NPL 

has 

Portugal 

differentials. 

Public  debt  is  decreasing  from  a  high  level. 
After  having  dropped  to  122.2%  of  GDP  by  the 
end of 2018, the public debt-to-GDP ratio is set to 
decline to 119.2% of GDP by the end of 2019 (13). 
Looking  ahead,  the  ratio  is  projected  to  continue 
decreasing by close to 3 pps per year to 113.7% of 
GDP  by  the  end  of  2021,  on  the  back  of  steady 
primary  surpluses  and  favourable  growth-interest 
rate 
deployed 
continuous  efforts  to  reduce  interest  expenditure, 
extend  the  average  debt  maturity  and  reduce 
annual  peaks  in  the  debt  redemption  profile. 
Moreover,  the  financial  assistance  loans  to  the 
International  Monetary  Fund  have  been  fully 
repaid by the end of 2018. Portugal also carried out 
in  October  2019  an  early  first  repayment  of €2 
billion 
the 
European  Financial  Stability  Facility,  which  were 
only  due  in  2025.  At  the  same  time,  a  more 
growth-friendly fiscal consolidation strategy could 
have  helped 
fiscal 
sustainability  even  further.  To  that  end,  fiscal-
structural reforms could have been implemented to 

strengthening  Portugal’s 

financial  assistance 

loans 

in 

to 

(13) See footnote 5. 

23 

                                                           
3. Summary of the main findings from the MIP in-depth review 

Table 3.2: 

MIP assessment matrix 

(Continued on the next page) 

24 

 Gravity of the challenge Evolution and prospects Policy response Imbalances (unsustainable trends, vulnerabilities and associated risks) External balance The net international investment position (NIIP) remained very negative at -105.6% of GDP at the end of 2018, standing well beyond the prudential threshold of -48%. However, risks are partly offset by the increased share of non-defaultable instruments, accounting for 54.1% of NIIP, and the lower risk-premium assigned to Portugal’s debtors. The current account remained only marginally positive in 2018 but is well beyond the estimated surplus of [2.4]% of GDP per year that is required to reach the country specific prudential NIIP benchmark over a 10-year period. This points out to further adjustment needs in order to reduce risks to the economy Portugal has made progress in adjusting its external imbalances, notably by improving competitiveness and current account flows. Accordingly, the NIIP improved from its lowest level of -123.8% of GDP at the end of 2014 to -105.6% at the end of 2018 and -101.5% until September 2019.  The current account balance deteriorated from 1.0% of GDP in 2017 to 0.1% in 2018 in national account terms. The balance turned negative in 2019 and is projected to deteriorate further to a deficit of around 1.0% by 2021. This suggests that the pace of adjustment is slowing. Unit labour costs are increasing at a rate similar to Portugal’s main trading partners. While the market shares of exports have recently increased, their medium-term growth is predicted to deteriorate. Progress has been made over the past years with tackling rigidities in product and labour markets. However, further measures to boost productivity and improve competitiveness remain essential to achieve a more significant improvement in the external balance. There is a risk that the positive economic cycle could further push up unit labour costs, slowing the export-led recovery. It is essential to find the right balance of policy measures to ensure income growth on the one hand and competitiveness on the other. Private debt High private-sector debt is still weighing negatively on investment and growth.   Private debt was around 155% of GDP at the end of 2018, which is still significantly above the estimated country specific fundamentals and prudential benchmarks. The high stock of non-performing loans remains a challenge. While it has been declining, the non-performing loans ratio remains high. Consolidated private debt fell from a peak of 210.6 % of GDP at end-2012 to 155.4 % at end-2018. The outlook also remains favourable. The process of deleveraging continues, mainly reflecting nominal growth in GDP amid a broadly stable stock of credit. Both the corporate and household sectors contributed to the deleveraging process. While declining, the high level of non-performing loans still poses a risk to financial stability and impedes the effective allocation of credit. A three-pillar strategy designed to reduce non-performing loans is being implemented. The strategy includes specific reduction targets which the banks with the largest non-performing loans ratios are to meet.   
 
  
 
3. Summary of the main findings from the MIP in-depth review 

Table (continued) 

Source: European Commission 

25 

Public debt  The public debt-to-GDP ratio remains at a very high level of around 120% of GDP. This makes the country vulnerable to changes in economic and financing conditions, which translate into high debt sustainability risks in the medium term. After hovering at around 130% between 2014 and 2016, the public debt-to-GDP ratio decreased to 126% in 2017 and further to 122.2% in 2018. Assuming steady primary surpluses and continued favourable nominal growth-interest rate differentials, the public debt-to-GDP ratio is projected to continue decreasing, albeit more gradually, from 119.2% in 2019 to 113.7% by 2021. Without additional growth-friendly fiscal consolidation compared with the Commission’s no-policy-change baseline scenario, the public debt-to-GDP ratio would still remain significantly above the Treaty reference value of 60%, at approximately 90% by 2030.  A more growth-friendly fiscal consolidation strategy could have helped strengthening Portugal’s fiscal sustainability even further. Some measures were taken in past years in the areas of tax reforms, tax compliance, expenditure control, pensions, healthcare, state-owned enterprises and public administration. However, implementation gaps persist especially in what concerns tackling underlying causes for the recurrent generation of arrears in hospitals, improving the financial sustainability of state-owned enterprises and the pension system, and deploying a comprehensive strategy for medium-term public administration reform. Productivity Low productivity growth hinders competitiveness and potential growth. This limits the prospects for further deleveraging, a more sustainable and inclusive growth, and progress in income convergence.  Labour productivity is improving marginally, following the revisions for GDP growth in 2017 and 2018. Productivity is expected to have improved at a stronger pace or around 1% in 2019, due to the decline in labour market slack and a projected slowdown in employment growth. Productivity remains impaired by low investment levels, skill gaps, rigidities in product and labour markets, and weaknesses in the business environment and the judiciary. There are a number of measures designed to help raise productivity and competitiveness, including policies in the areas of research and innovation, competition in services, and transport infrastructure. Other measures that could help to boost productivity and external competitiveness have to do with the business environment, and the efficiency of the justice system.     Conclusions from IDR analysis  Despite the progress achieved in the past years, the Portuguese economy continues to be marked by a large stock of external, public and private debt, as well as by a high share of non-performing loans. In addition, productivity growth is low, hampering the deleveraging process. While the current account balance helped improve the net international investment position (NIIP) up to 2018, it turned negative in 2019 and is expected to deteriorate further.  Private debt is declining in both the corporate and household sectors, mostly as a result of nominal GDP growth. Despite the projected downward path, the public debt-to-GDP ratio is set to remain at a very high level and weighs on the stock of external liabilities. Portugal’s NIIP remains a significant source of vulnerability, as the recent reversal of the current account risks bringing adjustment to a standstill. On the other hand, the structure of external liabilities improved in recent years due to a shift from debt to foreign direct investment and a lower risk profile of domestic debtors. The high stock of non-performing loans also remains a key weakness but the adjustment is advancing in accordance with the strategy implemented by banks and national authorities.  Policy progress differs substantially across areas. The programme to strengthen the sustainability of the health system and address hospital arrears is a step in the right direction, especially if implemented in a timely manner. Measures to ensure enhanced monitoring of state-owned enterprises are advancing only gradually. Various measures have been taken to reduce the administrative burden and improve the judicial system, and progress is being made. Reforms addressing barriers to competition are progressing more modestly, particularly as regards licensing requirements and procedures.   
  
 
4.  REFORM PRIORITIES 

4.1.  PUBLIC FINANCES AND TAXATION* 

sustainability  analysis.  First,  the  S1  indicator 
(which  evaluates  fiscal  sustainability  risks  in  the 
medium  term)  is  only  slightly  below  its  upper 
critical  threshold,  thereby  indicating  medium,  but 
close  to  high,  fiscal  sustainability  risks  in  the 
medium  term.  In  particular,  it  suggests  that  a 
cumulated additional improvement in the structural 
primary  balance  by  2.1%  of  GDP  over  5  years, 
compared  with 
the  Commission’s  no-policy-
change  baseline  scenario  (based  on  the  ad-hoc 
forecast of December 2019), would be required to 
bring  the  public  debt-to-GDP  ratio  down  to  the 
Treaty  reference  value  of  60%  by  2034.  This 
relatively high score for the S1 indicator is mainly 
due to the distance of the public debt-to-GDP ratio 
from  the  Treaty  reference  value  of  60%.  Second, 
the  Commission’s  no-policy-change 
although 
baseline 
fiscal 
scenario 
sustainability  risks  in  the  medium  term,  the 
Commission’s  debt  sustainability  analysis  (still 
based  on  the  2019  autumn  forecast)  points  to 
overall  high  risks  based  on  plausible  alternative 
scenarios  that  project  public  debt-to-GDP  ratios 
above 90% by 2030. 

entails  medium 

Graph 4.1.1:  Public debt projections under the baseline and 

alternative scenarios for nominal GDP growth 
and interest rates 

4.1.1.  DEBT SUSTAINABILITY ANALYSIS AND 

FISCAL RISKS* 

The  public  debt-to-GDP  ratio  is  projected  to 
continue falling steadily from a high level. After 
hovering  at  above  130%  between  2013  and  2016, 
Portugal’s  public  debt-to-GDP  ratio  posted  a  first 
substantial  decline  by  5.4  percentage  points  to 
in  2017,  followed  by  an  additional 
126.0% 
decrease by 3.8 pps to 122.2% in 2018. According 
to the Commission’s latest forecast (14), Portugal’s 
public  debt-to-GDP  ratio  is  projected  to  continue 
decreasing, albeit at a more gradual pace by close 
to 3 pps per year, from 119.2% in 2019 to 113.4% 
by  2021.  The  continuously  downward  path 
projected  for  Portugal’s  public  debt-to-GDP  ratio 
reflects  debt-reducing  impacts  stemming  from 
solid  primary  surpluses  and  favourable  nominal 
growth-interest  rate  differentials,  whereby  the 
combined  effects  of  continued  real  GDP  growth 
and  inflation  offset  the  sizeable,  yet  gradually 
diminishing,  interest  burden  on  the  high  debt 
overhang. 

Despite 
its  high  public  debt-to-GDP  ratio, 
Portugal  is  not  projected  to  face  significant 
fiscal sustainability risks in the short term. The 
S0  indicator  (which  evaluates  fiscal  sustainability 
risks  in  the  short  term,  stemming  from  the  fiscal, 
macro-financial  or  competitiveness  sides  of  the 
economy) is below its critical threshold (European 
Commission,  2020a).  In  particular,  both  the  fiscal 
and the financial competitiveness sub-indices have 
values  below  their  critical  thresholds.  This  is 
confirmed  by  the  lower  spreads  of  credit  default 
swaps  and  gradually  improving  credit  ratings 
during  2019,  which  allows  Portuguese  sovereign 
debt  holdings  to  be  included  in  wide  institutional 
investor  portfolios  based  on  the  investment  grade 
credit  assessment  by  all  four  relevant  rating 
agencies. 

However,  Portugal  is  projected  to  face  high 
fiscal  sustainability  risks  in  the  medium  term. 
The 
fiscal 
sustainability  risks  reflects  an  overall  conclusion 
based  on  the  S1  indicator  and  Portugal’s  debt 

of  medium-term 

assessment 

(14) See footnote 5. 

Source: European Commission 

The  Commission’s  debt  sustainability  analysis 
confirms  that  public  debt  would  be  very 
to  any  worsening  of  Portugal’s 
sensitive 

26 

6070809010011012013014020142015201620172018201920202021202220232024202520262027202820292030No-policy-change baseline scenarioStandardised (permanent) negative shock (-1 pp.) to interest ratesStandardised (permanent) positive shock (+1 pp.) to interest ratesStandardised (permanent) negative shock (-0.5 pp.) to GDP growthStandardised (permanent) positive shock (+0.5 pp.) to GDP growthCombined (permanent) favourable shock to GDP growth (+0.5 pp.) and interest rates (-1 pp.)Combined (permanent) adverse shock to GDP growth (-0.5 pp.) and interest rates (+1 pp.)% of GDP 
                                                           
  
4.1. Public finances and taxation* 

to gradually converge  to its last 15-year  historical 
average  of  a  structural  primary  deficit  of  around 
0.5% of GDP), the public debt-to-GDP ratio would 
stabilise at around 105%, as much as 15 pps above 
the  Commission’s  no-policy-change  baseline 
scenario. 
In  addition,  debt-increasing  costs 
stemming  from  demographic  ageing  are  projected 
to  deter  the  speed  of  debt  reduction  by  close  to 
3 pps  by  2030.  Portugal’s  currently  favourable 
economic and financing conditions offer a window 
of  opportunity  to  deploy  a  growth-friendly  fiscal 
consolidation  strategy  and 
fiscal-
structural  reforms  that  could  help  accelerating  the 
reduction  of  its  public  debt-to-GDP  ratio  and 
strengthening  its  resilience  to  any  potentially 
worsening  economic,  financing  and  demographic 
trends. 

implement 

Graph 4.1.2:  Public debt projections under the baseline and 

alternative scenarios for fiscal consolidation 

thereby 

incorporating 

economic  and  financing  conditions.  In  a  debt 
sustainability  analysis  still 
the 
Commission’s  2019  autumn  forecast  and  other 
technical  assumptions  (see  Annex  B) (15)  for  the 
medium  term,  the  public  debt-to-GDP  ratio  is 
expected  to  continue  falling  at  a  moderating  pace 
to  reach 
by  close 
to  3 pps  per  year  and 
still 
approximately  90%  by  2030, 
remaining significantly above the Treaty reference 
value  of  60%.  In  particular,  in  the  Commission’s 
no-policy-change  baseline  scenario,  the  public 
debt-to-GDP  ratio  would  cross  the  threshold  of 
in  2026.  The  projected  gradual 
100%  only 
decrease  in  Portugal’s  public  debt-to-GDP  ratio 
crucially  hinges  on  continuous  primary  surpluses 
and 
rate 
favourable  nominal  growth-interest 
differentials in the projection’s outer  years. While 
in  plausible  alternative  scenarios  incorporating 
potential  shortfalls  in  nominal  GDP  growth  or 
interest  rate  hikes,  the  public  debt-to-GDP  ratio 
would still be forecast to be on a steady downward 
path, 
the  pace  of  debt  reduction  would  be 
significantly  impaired  and  it  would  thus  take 
longer  for  the  public  debt-to-GDP  ratio  to  pass 
under  the  threshold  of  100%  (see  Graph  4.1.1). 
Overall, the current high public debt-to-GDP ratio 
constitutes  a  long-lasting  legacy  that  reduces  the 
scope of fiscal policy to cope with any worsening 
of  Portugal’s  economic  and  financing  conditions 
and to smooth inherent business cycle fluctuations. 

A  growth-friendly  fiscal  consolidation  strategy 
remains  instrumental  to  safeguard  Portugal’s 
fiscal  sustainability. 
If  Portugal’s  structural 
adjustment  were  consistently  in  full  compliance 
with  the  Stability  and  Growth  Pact,  notably 
through  fully adhering to its  current  medium-term 
budgetary  objective  of  a  balanced  budgetary 
position  in  structural  terms,  the  public  debt-to-
GDP  ratio  would  be  below  both  the  threshold  of 
90%  and 
the  Commission’s  no-policy-change 
baseline  scenario  by  2030  (see  Graph  4.1.2). 
Conversely,  were  Portugal’s  structural  primary 
balance to revert back to its historical trend (that is, 

(15)  These  assumptions  comprise:  (i)  a  structural  primary 
balance, before ageing costs, of 2.4% of GDP as of 2021; 
(ii) inflation converging to 2.0% by 2024; (iii) the nominal 
short- and long-term interest rates on new and rolled over 
debt  converging  linearly  from  current  values  to  market-
based  forward  nominal  rates  by  2029  (as  for  all  Member 
States);  (iv)  real  GDP  growth  rates  on  average  slightly 
below  1%;  and,  (v)  ageing  costs  in  line  with  European 
Commission  (2018).  More  details  on  the  assumptions  can 
be found in European Commission (2020a). 

Source: European Commission 

4.1.2.  FISCAL-STRUCTURAL ISSUES, INCLUDING 

PENSIONS AND HEALTHCARE* 

Recent  measures  have  entailed  direct  increases 
in  pension  spending.  First,  since  2017  lower 
pensions have been increased repeatedly above the 
reference  for  regular  pension  indexation  linked  to 
inflation  and  real  GDP  growth,  leading  to  higher 
expenditure  by  close  to  0.1%  of  GDP  each  year. 
Second,  since  2017  pathways  for  early  retirement 
have been consecutively broadened. In particular, a 
new  flexible  early  retirement  scheme  has  fully 

27 

6070809010011012013014020142015201620172018201920202021202220232024202520262027202820292030No-policy-change baseline scenarioNo-policy-change scenario without ageing costsStability and Growth Pact scenarioStability Programme scenarioHistorical structural primary balance scenario% of GDP                                                           
  
4.1. Public finances and taxation* 

kicked  in  by  October  2019 (16),  exempting  from 
the  applicable sustainability factor citizens  who at 
age 60 had paid social contributions for at least 40 
years,  while  preserving  a  penalty  proportional  to 
the missing months up to the legal retirement age. 
That  is  estimated  to  have  increased  expenditure 
even further, by close to 0.1% of GDP in 2019. 

There  is  a  risk  that  the  improvement  of  the 
balance in the pension system has been cyclical. 
On  the  one  hand,  spending  on  pensions  has 
continued to increase in 2019 (by around 0.5% of 
GDP  year-on-year  on  a  cash  basis),  mostly 
reflecting  the  underlying  upward  trend  driven  by 
demographic  ageing  and  the  impact  of  the  above-
mentioned  measures.  On  the  other  hand,  the 
currently favourable labour market conditions have 
continued  to  translate  into  significantly  higher 
revenue  from  social  contributions  and 
lower 
expenditure on unemployment benefits. The social 
security  balance  in  2019  has  also  benefited  from 
other  positive  impacts  from  measures  to  prevent 
fraud  and  error,  changes  to  the  contributory 
scheme  of  self-employed  workers  and  transfers 
from the state, partly related to earmarked revenue 
from  the  value-added  tax  (VAT),  the  corporate 
income  tax  (CIT) (17)  and  the  surcharge  on  the 
local  property  tax.  In  view  of  the  balance-
deteriorating effects of the recent measures and the 
growing  pressure 
from  demographic  ageing, 
coupled  with  the  lack  of  compensatory  balance-
improving  measures,  there  is  a  risk  that  the 
improvement  in  the  social  security  balance  has 
been  mostly  cyclical  and,  thus,  that  the  overall 
sustainability  of  the  pension  system  has  not  been 
strengthened in the long term. 

The financial sustainability of the health system 
remains  a  source  of  concern.  The  health  system 
posted  continued  deficits  throughout  2019  (of 
around 0.3% of GDP on a cash basis by the end of 
the  year),  reflecting  increases  in  the  wage  bill 
(including 
and 
spending on medicines and other healthcare goods 
and  services  (including  complementary  means  of 
diagnosis  and  therapeutic  use,  and  material  for 
clinical  consumption).  This  was  despite  some 
the 
improvements 

in  cost-effectiveness  and 

compensation) 

extra-hours 

If 

gradual  implementation  of  a  new  programme  to 
improve the sustainability of the health system (see 
below). Looking forward, the balance of the health 
system  is  expected  to  be  negatively  impacted  by 
the  planned  removal  of  user  charges  for  primary 
care. At the same time, the authorities expect that 
this measure will provide incentives for the use of 
primary care and discourage the use of emergency 
care, where user charges will remain if there is no 
referral. 
the  balance-
this  materialises, 
deteriorating impact of the measure may be offset 
to  some  extent  by  an  improvement  in  the  overall 
cost-effectiveness of the health system (see Section 
4.3.2  for  the  likely  impact  on  the  accessibility  of 
healthcare).  Moreover,  the  investment  gap  in  the 
health  system  remains  substantial  in  view  of  the 
hospitals, 
planned 
reinforcements in primary health care and medical 
equipment  updates  (European  Observatory  on 
Health Systems and Policies, 2018). Exploring the 
available  scope  to  optimising  efficiency  savings 
could  be  instrumental  to  ensuring  the  long-term 
sustainability  of  the  health  system  and    financing 
sustained improvements in access to healthcare. 

construction 

new 

of 

Cost-effectiveness has continued to be promoted 
in  the  health  system.  Portugal’s  health  system 
appears  to  be  relatively  ‘good  value  for  money’, 
producing  good  outcomes  for  the  comparatively 
modest,  albeit  increasing,  expenditure  channelled 
into  the  system.  The  system  performs  particularly 
well in certain areas, with relatively fewer hospital 
in  Portugal, 
beds  (3.4  per  1,000  population 
compared with the average of 5.1 for the EU) and 
more  day  case  surgeries  (European  Commission, 
2019b).  However,  the  average  length  of  stay  in 
hospital care is above the EU average (18). There is 
nevertheless  scope  to  continue  improving  cost-
effectiveness further, notably through even greater 
reliance  on  centralised  purchasing  and  uptake  of 
biosimilars  and  generics.  Initiatives  have  been 
undertaken  to  improve  the  use  of  biosimilars  and 
generics  where  appropriate,  producing  significant 
savings  that  may  still  be  increased.  A  joint  task 
force  of  the  Ministries  of  Finance  and  Health 
created in 2018 is working on a series of measures 
improve  overall  cost-effectiveness,  notably 
to 
the 
through 

reducing  hospital  arrears 

(see 

(16)  Between  January  and  September  2019,  the  new  flexible 
early retirement scheme covered citizens aged at least 63. 
(17)  The revenue associated with 1 pp of the CIT statutory rate, 

increasing by 0.5 pps to 2 pps by 2021. 

(18)  This  may  be  related  to  the  high  levels  of  day  cases  in 
hospitals,  since  length-of-stay  statistics  exclude  day  cases 
and  may  therefore  reflect  an  appropriate  use  of  non-day- 
case hospital care for more severe cases. 

28 

                                                           
                                                           
4.1. Public finances and taxation* 

country’s 

including 

education, 

expenditure  on 

than 20% of total public expenditure is channelled 
into categories with direct positive effects in long-
term  economic  growth  (European  Commission, 
long-term  economic 
2019a).  Expenditure  for 
growth, 
transport, 
environment  protection  and  R&D  expenditure) 
accounted  in  Portugal  for  only  7.7%  of  GDP  in 
2017  (broadly  in  line  with  the  EU).  Importantly, 
the 
environment 
protection that could help meet environmental and 
climate  goals  was  somewhat  below 
the  EU 
benchmark (0.6% of GDP in 2017, compared with 
0.8%  for  the  EU).  On  the  one  hand,  Portugal 
appears 
to  have  deployed  significantly  more 
resources  on  other  spending  items,  including  on 
general  public  services,  compared  with  the  EU 
benchmark  (14.3%  of  GDP  in  2017,  compared 
with  11.9%  in  the  EU  as  a  whole).  On  the  other 
hand,  Portugal’s  welfare  spending, 
including 
expenditure  on  social  protection  and  health,  was 
below the EU benchmark (23.7% of GDP in 2017, 
compared with 26.1% for the EU as a whole). 

Graph 4.1.3:  Public expenditure by function in 2017 

Source: European Commission 

Public  investment  has  been  subdued  for  a 
prolonged  period.  After  sustaining  very  high 
levels  during  the  first  decade  of  the  2000s, 
Portugal’s  public  investment  was  visibly  reduced 
during the crisis and dropped below the euro area’s 
average 
the  post-
programme  period,  public  investment  remained  at 
an average of 1.9% of GDP over the period 2015-
2018,  below  the  government  plans  and  the  EU 
average  of  2.8%  (Graph  4.1.4).  Looking  ahead, 
while public investment is projected to continue on 
the  gradually  increasing  path  initiated  in  2017, 

(Graph 4.1.4).  Throughout 

paragraph below) evaluating and reforming central 
procurement,  revising  pharmacy  margins  and 
assessing  the  primary  care  model.  The  impact  of 
these proposals will depend on the degree to which 
they are actually implemented. 

improve 

Prompt implementation of the new programme 
could improve the financial sustainability of the 
health system. As a rule, a high stock of hospital 
arrears  has  an  adverse  impact  on  supply  chain 
relationships and may end up limiting the scope for 
cost-savings. Portugal has a well-established track 
record  of  in-year  accumulation  of  hospital  arrears 
only  partly  contained  through  sizeable  ad-hoc 
clearance  measures,  with  particular  incidence  in 
the last months of each year. Notwithstanding such 
ad  hoc  clearance  measures,  leading  to  a  visible 
decrease  in  hospital  arrears  by  December  2018, 
hospital arrears were back on a steadily increasing 
path between July and November 2019 (reaching a 
level  close  to  0.4%  of  GDP),  before  another  one-
shot sharp correction in December (falling to 0.1% 
of  GDP).  The  implementation  of  a  new  fully-
fledged  programme 
the  overall 
to 
sustainability  of  the  health  system  and  tackle  the 
root causes of persistently high hospital arrears got 
under  way  in  2019,  led  by  the  above-mentioned 
joint  task  force.  The  programme  is  expected  to 
introduce  a  new  governance  model  for  public 
hospitals,  with  substantial  increases  in  hiring 
autonomy  and  annual  budgets  being  combined 
with  enhanced 
two 
Ministries.  A  formal  structure  to  evaluate  the 
management  of  public  hospitals  in  line  with  the 
programme’s  goals  was  created  in  June  2019. 
While  a  few  hospitals  will  start  operating  on  the 
basis of new business activity plans, thereby being 
the 
granted  some  more  autonomy,  most  of 
hospitals’  business  activity  plans  are  yet  to  be 
agreed upon. While the new programme appears to 
be  gradually  progressing  in  the  right  direction, 
swift  and  effective  implementation  would  be 
required 
the 
soften  pressures 
accumulation of arrears in hospital faster and more 
permanently. 

joint  monitoring  by 

causing 

the 

to 

4.1.3.  FISCAL FRAMEWORK AND STATE-OWNED 

ENTERPRISES* 

There is scope to optimise the quality of public 
finances 
through  prioritising  growth-  and 
environment friendly spending. In Portugal, less 

29 

020406080100PTEA19EU28Long-term spendingWelfare spendingOther spending% of total  
4.1. Public finances and taxation* 

modest efficiency savings of €190 million in 2020. 
The  exercise  is  not  yet  undergoing  a  regular  and 
independent evaluation, in particular regarding the 
quantification  of  the  savings  effectively  achieved. 
Strengthening  the  growth-friendliness  of  public 
finances  could  have  been  best  achieved  through  a 
two-pronged  strategy,  whereby 
resulting 
bottom-up savings could have been complemented 
with a top-down focus on the overall composition 
of  public  expenditure.  The  ongoing  spending 
review  could  thus  have  been  used  not  only  as  a 
source  of  efficiency  savings,  but  also  as  tool  for 
more growth-friendly public expenditure. 

the 

The  wage  bill  is  exerting  growing  pressure  on 
public expenditure. The number of civil servants 
has been increasing at a steadily accelerating pace 
since  mid-2015,  having  expanded  by  2.8%  year-
on-year in  September 2019. This occurred despite 
the  initial  plan  not  to  replace  every  civil  servant 
retiring  until  2020  according  to  2017  Stability 
Programme. Staff increases have been particularly 
pronounced  in  local  administration  and  in  the 
health and education systems. In addition, a wide-
ranging programme in the public sector to convert 
temporary contracts into permanent ones has been 
gradually 
reducing 
implemented  since  2017, 
labour market segmentation but also increasing the 
headcount  in  public  services.  Moreover,  the  35-
hour  working  week  was  extended  in  mid-2018  to 
health 
sector 
sector  employees  on  private 
contracts,  who  had  previously  worked  40  hours  a 
week.  In  addition,  since  2018  public  wages  have 
benefited  from  the  gradual  unfreezing  of  career 
progression with full implementation by December 
2019 (19)  and  leading  to  higher  expenditure  by 
around 0.2% of GDP in both years. In combination 
with the increase in the minimum wage applicable 
to  civil  servants 
in  2019,  higher  variable 
allowances  and  extra-hours  compensation,  the 
wage  bill  increased  above  government  plans  (by 
4.6%  year-on-year  in  2019,  compared  with  the 
implicit  annual  target  of  2.1%,  both  on  a  cash 
basis).  The  unfreezing  of  career  progression  also 
allowed for performance awards in 2019 (by 50% 
of  their  amount  and  up  to  the  available  funding). 
The  expanding  wage  bill  limits  the  room  for 
adjust 
manoeuvre 

the  government 

for 

to 

(19)  The additional payments were gradually phased in: 25% by 
January 2018, 50% by September 2018, 75% by May 2019 
and 100% by December 2019. 

the  one  hand, 

after  its  lowest  level  in  2016,  sizeable  investment 
gaps  are  expected  to  persist  during  the  period 
covered  by  the  Commission’s  forecast  compared 
with  the  EU  benchmark  and  the  pre-crisis  levels. 
On 
the  correction  of  public 
investment  from  the  very  high  pre-crisis  levels 
could  reflect  a  greater  focus  on  high-quality 
projects,  thereby  excluding  those  with  low  or 
negative  rates  of  return.  On  the  other  hand,  a 
protracted  period  of  continuously  subdued  public 
investment  levels  could  jeopardise  the  public 
capital  stock.  Importantly,  public  investment  in 
Portugal  has  been  lower  than  the  consumption  of 
public  fixed  capital  since  2012,  translating  into 
continuously  negative  net  public  investment  and 
the  potential  erosion  of  the  public  capital  stock. 
Clear  focus  on  high-quality  investment  could 
support  the  effectiveness  of  public  services  and 
maximise 
the  growth-friendliness  of  public 
finances (see Section 4.4.1.). 

Graph 4.1.4:  Public investment in 2001-2018 

Source: European Commission 

The ongoing review of public expenditure could 
help  making  it  more  growth-friendly.  Portugal 
has been undertaking a bottom-up review of public 
expenditure  for  a  number  of  years,  aiming  at 
improving  the  efficiency  of  public  spending  in  a 
broad  range  of  areas  (see  European  Commission, 
2019a).  In  2019,  it  is  estimated  to  have  yielded 
efficiency savings of €236 million (around 0.1% of 
GDP)  across  a  series  of  public  sectors.  For  2020, 
according  to  Portugal’s  updated  Draft  Budgetary 
Plan,  the  expenditure  review  is  planned  to  lose 
some momentum, being expected to generate more 

30 

  
                                                           
4.1. Public finances and taxation* 

important changes. First, the  Council of Ministers 
– instead of the sectorial Minister and the Minister 
of Finance – will decide on the launching of a new 
PPP.  Second,  while  in  the  past  the  conditions  for 
launching  a  new  PPP  were  clearly  laid  down  in 
law, they are now to be defined on a case-by-case 
basis for each new PPP, which allows more scope 
for  discretion.  Third,  among  others  operations, 
partnership  contracts  designed  to  develop  projects 
under  the  terms  of  the  recent  Housing  Basic  Law 
were  excluded  from 
legal  arrangements 
governing PPPs. It is currently unclear whether the 
narrower scope and the greater degree of discretion 
introduced  by  the  recent  changes  will  strengthen 
the  legal  and  institutional  framework  for  PPPs.  It 
will be important to monitor the implementation of 
these  changes  closely  to  safeguard  appropriate 
control mechanisms and ensure that any new PPPs 
have an unquestionable positive cost-benefit ratio. 

the 

Strong  framework  conditions  for  fiscal  policy 
contribute  to  achieving  a  growth-friendly  path 
for  fiscal  consolidation.  The  full  and  effective 
implementation of the 2015 Budgetary Framework 
Law  (BFL)  is  paramount.  The  2015  BFL  is 
designed  to  make  budget  units  more  accountable 
and strengthen the medium- to long-term focus of 
public  finances.  It  allowed  for  a 
three-year 
transitional period for applying most new features. 
However,  due  to  repeated  delays,  the  entry  into 
force of the main provisions of the 2015 BFL was 
postponed  to  1 April  2020.  A  working  group  to 
evaluate  the  BFL  has  been  appointed  in  February 
2020  and  tasked  to  present  a report  in  May  2020. 
In  terms  of  regulatory  preparation,  a  series  of 
decree-laws  will 
and 
require 
consolidation,  and  a  decree-law  establishing  the 
new  budgetary  programmes  still  needs  to  be 
drafted (21).  The  lack  of  significant  progress  on 
enforcing  the  2015  BFL  and  uncertainties  as 
regards the  way  forward  with operationalising the 
necessary  changes  mean  that  the  new  framework 
cannot be fully applied to the 2021 state budget as 
previously planned (Portuguese Court of Auditors, 
2019). Moreover, the full and effective application 
the  new  accrual-based  public  accounting 
of 
framework  is  delayed,  following  implementation 
lags  in  particular  for  local  authorities  and  social 
its 
security.  As  with 

2015  BFL, 

adjustment 

the 

(21)  The  amendment  to  the  BFL  had  set  a  new  deadline  (June 
2019)  for  the  approval  of  a  decree-law  on  budgetary 
programmes. This deadline was not met. 

expenditure in line with potentially less favourable 
economic conditions and new policy objectives. 

of 

non-financial  SOEs 

State-owned  enterprises  (SOEs)  continue  to 
struggle 
financial 
to  achieve  a  balanced 
position. While the net incomes of financial SOEs 
improved in the first three quarters of 2019, the net 
gradually 
incomes 
worsened  compared  with  2018.  As  a  result,  it  is 
expected  that  by  the  end  of  2019  SOEs  overall 
ended  up  being  farther  from  balance  compared 
with government plans. At the same time, the debt 
to 
of  public  non-financial  SOEs  continued 
decrease,  though  at  a  decelerating  pace,  from 
18.4% of GDP in at the end of 2018, to 17.3% of 
GDP  by  the  third  quarter  of  2019  (Banco  de 
Portugal,  2020).  Some  measures  to  improve  the 
sustainability of SOEs are only being implemented 
gradually;  they  include  the  analysis  of  quarterly 
data  designed  to  identify  and  correct  deviations 
from the approved budgets in good time. There are 
also  plans  to  eventually  introduce  new  incentives 
for employees and  managers  to improve reporting 
standards.  Moreover,  the  capital  structure  of  a 
series  of  SOEs  has  been  strengthened  through 
sizeable capital injections, while the liquidation of 
unprofitable  or 
redundant  SOEs  has  been 
continued.  Transparency  regarding  the  financial 
position  of  SOEs  has  been  improved  somewhat 
through  the  publication  of  aggregate  quarterly 
financial  data  within  a  shorter  timeframe.  Having 
said 
that,  planned  rationalisation  efforts  and 
increased  monitoring  have  yet  to  translate  into  a 
sustained improvement in net incomes. 

Recent  changes  to  the  legal  and  institutional 
framework 
for  public-private  partnerships 
(PPPs) will require close monitoring with a view 
to  containing  fiscal  risks.  During  Portugal’s 
economic  adjustment  programme,  the  institutional 
and  legal  framework  for  PPPs  was  significantly 
strengthened. The aim was to end malpractice and 
uncertainties 
the  arrangements  surrounding 
PPPs  which  had  led  to  a  substantial  financial 
burden  on  public  finances (20).  In  particular,  the 
revamped  framework  imposed  stricter  conditions 
on  new  PPPs.  These  included  a  cost-benefit  test, 
affordability  and  compliance  with 
stringent 
tendering requirements. The overall framework for 
PPPs  was  recently  revised  through  Decree-Law 
No 170/2019  of  4  December,  which  included 

in 

(20)  Through Decree-Law No 111/2012 of 23 May. 

31 

                                                           
                                                           
4.1. Public finances and taxation* 

in  some  other 

The  tax  system  has  remained  broadly  stable  in 
substance, despite the proliferation of marginal 
parametric  changes.  In  2019,  various  small 
changes  were  introduced  in  direct  and  indirect 
taxes  (see  European  Commission,  2019a).  For 
2020, the final state budget reports some tax hikes 
to  incentivise  decarbonisation,  combined  with 
taxes  (including 
limited  cuts 
selective  reductions  of  personal  income  tax  (PIT) 
for young workers and couples with children aged 
3 or below, as well as of autonomous taxations and 
taxation  on  small  and  medium-sized  companies 
under  the  CIT).  Focusing  on  recent  changes  in 
CIT,  the  continued  proliferation  of  size-  and 
location-dependent preferential tax rules may put a 
drag  on  productivity  and  investment  growth;  in 
particular,  by  focusing  on  smaller  firms  and/or 
those  operating 
less 
productive  areas,  such  policies  may  detract 
businesses from scaling up and/or benefiting from 
agglomeration  spill-over  effects  that  could  help 
achieving  greater  economies  of 
scale  and 
efficiency gains. 

specific,  possibly 

in 

The  efficiency  of  VAT  collection  continues  to 
improve.  The  VAT  gap  (which  provides  an 
estimate  of revenue loss due  to tax  fraud, evasion 
and  avoidance,  among  other  factors)  has  been 
steadily declining since 2011, falling by more than 
5  pps  between  2016  and  2017,  from  13%  to  10% 
of  total  VAT  tax  liability  (Centre  for  Social  and 
Economic  Research,  2019).  Portugal’s  VAT  gap 
thus remained somewhat below the EU average of 
11%. Having said that, Portugal’s VAT policy gap 
(which provides an estimate of revenue loss due to 
the  use  of  reduced  VAT  rates  and  exemptions) 
remained well above the EU average, at 51.2% in 
2017, compared with 44.5% for the EU in general. 
In particular, the divergence of the actionable VAT 
policy  gap  (which  excludes  tax  liability  from 
imputed  rents,  public  services  and  financial 
services) from the EU increased in 2017, with the 
gap amounting to 18.4%, above the 13.0% for the 
EU.  The  high  actionable  VAT  policy  gap  is 
composed  of  the  rate  gap  and  the  actionable 
exemption gap. The comparatively high actionable 
VAT policy gap in Portugal mostly reflects the use 
of  reduced  VAT  rates.  However,  as  far  as 
inequality  matters  are  concerned,  reduced  VAT 
rates are  generally a rather poorly targeted tool to 
support 
Direct 
mechanisms, such as income-tested cash transfers, 
are preferable. 

low-income 

households. 

implementation  may  not  be  sufficiently  advanced 
across  all  government  sectors  to  ensure  that  the 
2021  state  budget  is  drawn  up  under  the  new 
framework. 

4.1.4.  TAXATION ISSUES, INCLUDING TAX 

ADMINISTRATION*  

in 

the 

increments 

The tax burden increased in 2018, mostly on the 
back  of  the  economic  conditions  that  were 
generally favourable. The overall tax revenue-to-
GDP ratio, meaning the sum of revenue from taxes 
and  net  social  contributions  as  a  percentage  of 
nominal  GDP,  stood  at  34.9%  in  2018,  slightly 
higher than in 2017 (34.1%). This increase in 2018 
tax-
echoed  year-on-year 
revenue-to-GDP  ratios  of  taxes  on  consumption 
(by 0.2 pps, reflecting  solid consumption growth), 
taxes  on  capital  (by  0.3 pps,  reflecting 
the 
expansion  of  the  real  estate  market)  and  of  taxes 
on  labour  (by  0.3 pps).  Overall,  Portugal  relies 
relatively heavily on consumption taxes (12.9% of 
GDP  in  2018,  compared  with  10.9%  for  the  euro 
area and 11.2% for the EU as a whole) (European 
Commission,  2020b).  At  the  same  time,  the 
revenue 
taxes  was 
relatively  low  in  Portugal  in  2018,  accounting  for 
0.8%  of  GDP  (or  2.3%  of  total  tax  revenue), 
compared with the EU average of 1.5% of GDP (or 
43.9% of total tax revenue). 

recurrent  property 

from 

Graph 4.1.5:  Tax revenue by function in 2018 

Source: European Commission 

32 

0.05.010.015.020.025.030.035.040.045.0PTEA19EU28Taxes on consumptionTaxes on labourTaxes on capital% of GDP  
revenue 

Environmental  tax  revenues  remain  stable  and 
comparatively 
from 
high.  The 
environmental  taxes  was  2.6%  of  GDP  in  2018, 
compared with 2.4% for the EU average (European 
Commission,  2020b).  Revenue  from  these  taxes 
relied  mainly  on  transport-related  taxes,  which 
accounted  for  0.7%  of  GDP  in  2018,  compared 
with  0.5%  in  the  EU.  At  the  same  time,  taxes  on 
pollution  and  resources  accounted  for  only  0.02% 
of GDP in 2018, compared with 0.08% for the EU 
and  the  euro  area.  Excise  duties  on  diesel  remain 
lower than those on petrol, even though the former 
has  a  higher  carbon  and  energy  content.  Despite 
progress  on  this  issue  over  the  past  four  years, 
Portugal  still  has  a  significantly  low  ratio  of  duty 
on  diesel  to  duty  on  petrol  (0.76  in  the  country 
compared with 0.81 in the EU in January 2019). 

in  Portugal 

is  estimated  by 

There  is  a  scope  to  improve  the  transparency 
and  economic  rationale  for  tax  expenditure  in 
Portugal. Including the revenue foregone owing to 
extensive  use  of  VAT  preferential  rates,  tax 
expenditure 
the 
authorities  to  have  reached  6.2%  of  GDP  in  2019 
(see  Ministry  of  Finance,  2019).  Excluding  VAT, 
tax  expenditure  was  still  considerable  at  1.9%  of 
GDP  in  2019.  The  Working  Group  on  Tax 
Benefits  concluded  in  June  2019    that  the  tax 
benefit  system  was  complex  and  not  sufficiently 
transparent (see Grupo de Trabalho para o Estudo 
dos  Benefícios  Fiscais,  2019).  Importantly,  more 
than 500 tax benefits  have been identified, spread 
over  more  than  60  legal  texts.  On  that  basis,  a 
methodology  for  assessing  tax  benefits  has  been 
proposed,  defining  guidelines  for  the  creation  of 
new  tax  benefits,  their  yearly  monitoring  and  ex-
post evaluation. At the same time, focusing on the 
current  tax  benefit  system  for  R&D  (Sistema  de 
Incentivos Fiscais à Inovação e Desenvolvimento, 
SIFIDE),  the  findings  were  positive  insofar  as 
every euro of tax revenue  foregone  was estimated 
to  have  turned  into  more  than  one  euro  of  R&D 
expenditure  by  the  beneficiary  firms.  Overall,  the 
conclusions of the Working Group are expected to 
further guide tax policy in the future. 

4.1. Public finances and taxation* 

Graph 4.1.6:  Time to prepare and pay taxes in the euro 

area (2018) 

Source: World Bank 

the 

Greater  simplification  could  make  Portugal’s 
tax  system  more  business-friendly.  It  remains 
burdensome  to  comply  with  taxes  in  Portugal. 
Although e-filing has become the norm in Portugal 
over  the  past  few  years  and  the  pre-filing  of  PIT 
returns  ensures  that  most  of  the  information  is 
already  collected  and  computed  by 
tax 
administration,  Portugal  is  one  of  the  countries 
where  it  still  takes  too  long  to  pay  taxes.  Indeed, 
according to the Paying Taxes 2020 Report (World 
Bank, 2019a), the time needed to prepare and pay 
taxes  in  Portugal  was  243  hours  in  2018,  the 
longest in the euro area and the 4th longest in the 
EU  (see  Graph  4.1.6).  This  is  significantly  above 
the  unweighted  euro  area  average  of  146.5  hours 
and the EU average of around 171.5. At the same 
time,  the  number  of  payments  (8  per  year,  below 
average) and the post-filing index (one of the best 
observed)  decreased.  Furthermore,  around  two 
thirds  of  firms  surveyed  in  2017  perceived  the 
and 
Portuguese 
ineffective’, an increase of around 10 pps from two 
years  earlier.  The  tax  system  could  be  made  less 
complex  by 
level  of  special 
provisions  and  simplifying  the  language  used  in 
legal  drafting,  thereby  limiting  the  scope  for 
divergent 
the 
efficiency of the justice system when dealing with 
taxation-related issues can be further improved, as 
the disposition time and the case backlogs remain 
high (see Section 4.4.4). 

interpretations. 

Importantly, 

‘complex 

reducing 

system 

the 

tax 

as 

33 

050100150200250300PTITSIDEELSKLVESFRMTBEATCYNLLTFIIELUEECountry scoreEA19 averageHoursto prepare and pay taxes  
4.2.  FINANCIAL SECTOR* 

a 

resilience 

Portuguese  banks  have  continued  to  improve 
their 
challenging 
despite 
environment.  Most  banks  have  markedly 
improved  their  performance,  increased  capital 
ratios somewhat and continued to eliminate legacy 
assets  from  their  balance  sheets.  Nevertheless, 
similarly  to  their  European  peers,  Portuguese 
lenders still face both pressures on profitability and 
efficiency  challenges  in  an  environment  of  muted 
loan growth. The protracted period of low interest 
rates and the relatively large, albeit declining stock 
of  non-performing  loans  (22)  and  foreclosed  real 
their  general 
estate  assets  further  weigh  on 
performance.  Solvency  ratios,  measured  by  the 
Common  Equity  Tier  1  (CET1)  ratio  increased 
from  13.2%  at  the  end  of  2018  to  13.9%  in  Q2-
2019 reflecting largely the incorporation of profits 
for  2018.  The  banks’ 
ratio 
remained  stable  at  76.7%  whereas  central  bank 
funding was equivalent to 4.9% of total assets, the 
lowest share since the onset  of the  financial crisis 
in Portugal.  

loan-to-deposit 

euro  area  average  and  87  basis  points  below  the 
Spanish  average.  The  average  interest  rates  on 
loans  for  consumption  and  other  purposes  were 
6.97%  and  3.24%,  respectively.  The  average 
deposit  rate  stood  at  0.12%  in  September  2019. 
Total bank  deposits  increased  by  4.1%  on  a  year-
on-year  basis  with  corporate  deposits  growing 
faster at 5.5%. As Portuguese law prohibits banks 
from  charging  negative  interest  rates,  this  has 
resulted  in  deposit  inflows  for  arbitrage  purposes 
by foreign large corporates that face negative rates 
in their home jurisdictions. 

Graph 4.2.1:  The funding gap closed 

Most Portuguese banks have been profitable for 
a  third  consecutive  year.  In  annual  terms,  Q2-
2019 was marked by a somewhat decreasing return 
on  assets  (ROA)  -  at  0.5%  against  0.6%  in  Q2-
2018  and  return  on  equity  (ROE),  which  was 
around 5.3% (6.3% in Q2-2018). The reduction of 
both  ratios  reflected  the  decline  in  profits  from 
financial  operations  and  the  slight  increase  in 
provisions and impairments. As in previous years, 
is  considerable  heterogeneity  between 
there 
institutions as lenders continue their adjustment in 
relation to restructuring plans and efforts to reduce 
non-performing  assets.  However,  the  aggregate 
balance  sheet  of  the  sector  remains  substantially 
less leveraged than in the years before the financial 
crisis.  For  banking  groups  with  significant 
international  activity, 
their  business  outside 
Portugal continues to make a positive contribution 
to the groups’ consolidated results. 

As interest rates continue to fall, mortgage rates 
test  the  1%  threshold.  In  September, 
the 
weighted  average  interest  rate  on  new  mortgages 
was  1.00%,  a  new  historical  low,  whereas  non-
financial corporations were charged on average an 
interest  rate  of  2.18%.  The  average  housing  loan 
rates  in  Portugal  were  47  basis  points  below  the 

(22)  The NPL ratio dropped to 8.3% in Q2-2019, less than of its 

peak level of 17.7% in September 2016. 

Source: Banco de Portugal 

Banks’  capital  ratios  have  been  broadly  stable 
in  recent  years,  above  regulatory  minima  but 
below  the  euro  area  average.  The  system-wide 
Common  Equity  Tier  1  (CET1)  ratio  stood  at 
13.9% in Q2-2019, which is broadly unchanged on 
the  figure  for  twelve  months  earlier,  but  up  from 
11.4%  in  December  2016.  This  compares  with  a 
CET1 ratio of 14.8% for the euro area in Q2-2019. 
To some extent, this reflects the high average risk-
weighted  assets  held  by  Portuguese  banks, 
although the latter have been on a  declining  trend 
in recent years, falling to 54.4% in December 2018 
from 60.9% in December 2014. The phasing-in of 
the  minimum  requirement  for  own  funds  and 
eligible liabilities (MREL) is bound to last over the 
next 
is 
significant  insofar  as  it  is  compelling  banks  to  go 
to  the  market  early  in  order  to  test  their  ability  to 
raise funds at a sustainable cost. Nevertheless, with 

three  years.  The  MREL  challenge 

34 

-20020406080100120140100120140160180200220240260Jan-2003Jul-2003Jan-2004Jul-2004Jan-2005Jul-2005Jan-2006Jul-2006Jan-2007Jul-2007Jan-2008Jul-2008Jan-2009Jul-2009Jan-2010Jul-2010Jan-2011Jul-2011Jan-2012Jul-2012Jan-2013Jul-2013Jan-2014Jul-2014Jan-2015Jul-2015Jan-2016Jul-2016Jan-2017Jul-2017Jan-2018Jul-2018Jan-2019Jul-2019Aggregate LoansTotal DepositsFunding Gap (rhs)EURbillionEURbillion 
                                                           
  
4.2. Financial sector* 

Table 4.2.1: 

Financial stability indicators 

Source:  CB - CBD2 - Consolidated Banking data; European Commission 

stable  capital  levels  and  on  the  back  of  improved 
profitability,  four  of  the  five  largest  banks  have 
the  still 
resumed  dividend  payouts,  despite 
challenging environment in which they operate. 

Banks’  asset  quality  has  improved  with  the 
share  of  non-performing  loans  decreasing  by 
more than  half since 2016. At 8.3% in Q2-2019, 
the  NPL  ratio  was  still  among  the  highest  in  the 
EU,  albeit  half  of  its  level  in  Q2-2016.  This 
reduction  is  the  result  of  banks’  NPL  reduction 
strategies, involving a combination of sales, write-
offs  and  cures.  The  recovery  in  real  estate  prices 
has led to the development of an active secondary 
transactions 
market  for  distressed  debt,  with 
totalling  €6  billion  in  2018.  Still,  at  16.6%,  the 
corporate  NPL  ratio  remains  high,  with  roughly 
one-fifth  of  companies  having  troubles  servicing 
their  debt.  Household  NPLs  amounted  to  4.4%  of 
total  loans  in  Q2-2019  and  10%  of  households 
were  late  on  payments.  The  NPL  coverage  ratio 
was 52.7%, somewhat above the EU average. 

Graph 4.2.2:  Performing loans grow but the gross  

loan stock still falls 

Source: Banco de Portugal 

in 

price 

needs 

growth 

The  introduction  of  borrower-based  limits  has 
led  to  more  prudent  mortgage  attribution,  yet 
continued 
house 
monitoring.  The  mortgage  volume  quadrupled 
between 2015 and 2018 in a context of low interest 
rates and an observed easing of credit standards. In 
response,  in  July  2018  the  Banco  de  Portugal 
its  capacity  as  macro-prudential 
(BdP), 
authority, 
loan-to-value 
(LTV) and debt-service-to-income (DSTI) ratios as 
well as limits on loan  maturities. The BdP further 
introduced  a  loan  amortisation  requirement.  The 
aim  of  the  measures  is  to  preserve  borrowers’ 
solvency  and  ensure  sound  credit  standards  by 
reducing  the  share  of  risk  loans.  While  the 
introduction of these  measures is still recent,  they 
nonetheless appear to have contributed to slowing 
mortgage credit growth (Graph 4.2.3) and reducing 

introduced 

limits  on 

35 

-10-5051015200369121518Jan-2004Jul-2004Jan-2005Jul-2005Jan-2006Jul-2006Jan-2007Jul-2007Jan-2008Jul-2008Jan-2009Jul-2009Jan-2010Jul-2010Jan-2011Jul-2011Jan-2012Jul-2012Jan-2013Jul-2013Jan-2014Jul-2014Jan-2015Jul-2015Jan-2016Jul-2016Jan-2017Jul-2017Jan-2018Jul-2018Jan-2019Jul-2019Overdue loans (lhs)Gross loans (y-o-y % change) (rhs)Overdue loans (% of total gross loans) (rhs)Performing loans (y-o-y % change) (rhs)EUR billions%2014q42015q42016q32016q42017q12017q22017q32017q42018q12019q12019q2Non-performing loans16.617.517.717.216.415.514.613.312.78.98.3o/w foreign entities11.911.111.610.79.69.18.37.66.94.64.2o/w NFC & HH sectors17.817.918.317.517.116.215.614.613.89.99.2o/w NFC sector27.928.330.129.429.027.526.625.223.817.616.6o/w HH sector9.79.49.18.78.48.17.87.16.74.84.4Coverage ratio37.940.643.645.445.645.946.949.952.752.752.7Return on equity(1)-3.50.90.3-5.5-0.30.51.5-0.88.56.15.3Return on assets(1)-0.20.10.1-0.30.00.10.20.00.80.60.5Total capital ratio12.313.313.212.313.914.414.715.215.016.016.1CET 1 ratio11.312.412.311.412.613.213.513.913.613.813.9Tier 1 ratio11.412.612.611.713.213.814.014.514.214.814.8Loan to deposit ratio84.981.580.880.879.679.479.578.978.076.276.7(1) Annualized data. 
  
 
  
 
4.2. Financial sector* 

the share of mortgages with high LTV- and DSTI-
ratios.  Meanwhile  house  price  growth  has 
remained  quite  strong  (Graph  4.2.4).  Given  the 
lower  number  of  potential  applicants  for  house 
loans and their better risk profile, competition  via 
the interest rate has intensified.  

Graph 4.2.4:  House prices (new dwellings)  rise ever faster 

as the savings go quasi-unremunerated 

literacy 

could  help 
financial 
Improving 
Portuguese 
firms`  access  capital  markets. 
International studies, such as the OECD’s financial 
literacy  surveys,  point  to  deficits  in  financial 
literacy 
including 
in  all  surveyed  countries, 
Portugal.  The  groups  identified  with  a  higher 
financial  literacy  deficit  are  the  young  and  the 
elderly,  students,  the  unemployed,  and  those  with 
lower  schooling  and  income  levels.  These  are  the 
priority  groups  to  be  targeted  within  the  financial 
education 
households, 
entrepreneurs  also  need  to  raise  their  levels  of 
financial  literacy  in  order  to  reap  benefits  from 
improved  and  better-integrated  capital  markets. 
The  ongoing  project 
‘Mobilising  Portuguese 
Capital  Markets  for  Investment  and  Growth’ 
financed  by 
the  Structural  Reform  Support 
Programme  aims  to  improve  access  and  diversify 
financing  for  business  and  will  also  offer  more 
options for diversification of investments. 

Similarly, 

strategy. 

Graph 4.2.3:  New mortgages quadrupled, fresh consumer 

loans doubled, new corporate loans keep 
falling 

Source: Banco de Portugal 

Source: Banco de Portugal and Eurostat 

House  prices  growth  remains  strong.  The 
growth in house prices declined only slightly from 
an  annual  average  of  10.3%  (y-o-y)  in  2018  to 
9.2%  in  Q1-2019  and  10.1%  in  Q2-2019.  In 
deflated terms, the growth rate also remains high at 
7.7% in Q1-2019 and 9.0% in Q2-2019, relative to 
an  annual  average  of  8.8%  in  2018.  House  price 
growth thus exceeds the indicative threshold of 6% 
for  a  fourth  year  in  a  row  but  this  follows  a  long 
period  of  undervaluation.  This  has  led  to  housing 
affordability  problems  in  some  regions,  even 
though they are partly mitigated by the large share 
of  property  ownership  in  Portugal.  The  BdP  has 
introduced a  set of  macro-prudential  measures for 
loans granted to consumers (see above). 

linked 

Property  valuations  are  rising  above  long-term 
rates. The estimated price-to-income and price-to-
rent ratios moved to a positive territory in 2018 at 
1.9% and 5.2% respectively (see Graph 4.2.5). The 
valuation  gap 
the  deviation  from 
to 
equilibrium  prices  based  on  supply  and  demand 
fundamentals, suggests an overvaluation of 13.9% 
in 2018, up from 7.5% in 2017. The overall house 
price gap is estimated at 7.0% in 2018. However, a 
significant  part  of  the  price  dynamics  reflects 
structural  changes  on  the  market,  as  the  strong 
growth  in  tourism,  including  structural  shifts 
towards commercial use of housing properties, has 
increased  demand  for  residential  real  estate. 
External  investment  demand,  in  combination  with 
low interest rates, is also playing a role as less than 
half  is  financed  through  domestic  mortgages.  The 

36 

0123456780.000.250.500.751.001.251.501.752.00Jan-2006Jul-2006Jan-2007Jul-2007Jan-2008Jul-2008Jan-2009Jul-2009Jan-2010Jul-2010Jan-2011Jul-2011Jan-2012Jul-2012Jan-2013Jul-2013Jan-2014Jul-2014Jan-2015Jul-2015Jan-2016Jul-2016Jan-2017Jul-2017Jan-2018Jul-2018Jan-2019Jul-2019NFCs (rhs)Households - mortgagesHouseholds - Consumer creditEUR billionEUR billion-10-5051015012345Q4-2009Q1-2010Q2-2010Q3-2010Q4-2010Q1-2011Q2-2011Q3-2011Q4-2011Q1-2012Q2-2012Q3-2012Q4-2012Q1-2013Q2-2013Q3-2013Q4-2013Q1-2014Q2-2014Q3-2014Q4-2014Q1-2015Q2-2015Q3-2015Q4-2015Q1-2016Q2-2016Q3-2016Q4-2016Q1-2017Q2-2017Q3-2017Q4-2017Q1-2018Q2-2018Q3-2018Q4-2018Q1-2019Q2-2019Q3-2019Average interest rate for new deposits (lhs, inverted)Average interest rate for new mortgages (lhs, inverted)House price index (new dwellings)%y-o-y% change  
 
  
4.2. Financial sector* 

stock  of  domestic  mortgage  loans  is  still  on  a 
downward trend relative to GDP. 

Graph 4.2.5:  Valuation gap on price/income, price/rent 

and fundamental model valuation 

Source: European Commission 

Challenges  to  the  efficiency  of  the  justice 
system,  in  particular  related  to  insolvency, 
affect the NPL resolution process. The legal and 
judicial  frameworks  are  affecting  the  recovery 
process and the prospects for efficient repossession 
of  collateral.  The  longer  the  average  duration  of 
recovery  proceedings,  the  higher  the  level  of 
uncertainty  that  accompanies  these  proceedings 
and  therefore  the  lower  the  price  applied  by  the 
market to non-performing assets. Over the past few 
years, a significant number of reforms to the legal 
and  institutional  framework  for  insolvency  and 
debt enforcement were implemented. Recently, the 
authorities  set  up  an  early  warning  mechanism  to 
monitor key corporate  soundness indicators.  Also, 
since  July  2019  Portuguese  lenders  have  the 
possibility  to  make  use  of  a  special  regime 
allowing  them  to  transfer  loan  portfolios  in  bulk 
from  one  financial  institution  to  another.  This 
enables  a  faster  and  less  costly  process  of  selling 
NPLs.  Nevertheless,  challenges  related  to  lengthy 
proceedings  and  a  large  backlog  of  cases  remain 
(see Section 4.4.4). 

37 

-20-15-10-5051015201999200120032005200720092011201320152017Model-based valuations gapPrice to income vs. hist. avg.Price to rent vs. hist. avg.Overall valuation gap% deviation of current price  
 
4.3.  LABOUR MARKET, EDUCATION AND SOCIAL POLICIES* 

4.3.1.  LABOUR MARKET* 

Positive  labour  market  developments  continue, 
though  more  moderately  than  in  recent  years. 
Employment  reached  76.5%  in  Q3-2019,  while 
unemployment  stood  at  6.4%,  0.2  pps  lower  than 
the  previous  quarter  and  slightly  above  the  EU 
average. Long-term unemployment fell from 2.9% 
in  Q3-2018  to  2.8%  in  Q3-2019,  but  remains 
slightly  above  the  EU  average  (2.5%)  and  still 
accounts for around 44.9% of total unemployment.  

While unemployment has been falling, Portugal 
has unused labour market reserves. The share of 
the people available to work but not seeking a job 
remains  higher  than  the  EU  average  (3.2%  of  the 
active population, vs. 2.9% in the EU in Q3-2019), 
while 
the  share  of  underemployed  part-time 
workers  is  below  the  EU  average  (2.9%  vs.  3.2% 
in  Q3-2019).  Figures  appear  to  have  stabilised 
since  the  second  quarter  of  2018,  after  four  years 
of  gradual  decreases.  These  two  groups  jointly 
represent  a  labour  reserve  that  is  as  high  as  the 
unemployment rate and are critical for coping with 
demographic challenges in Portugal.  

Graph 4.3.1:  Unemployment rate and potential additional 

labour force 

decreased  from  9.3%  in  2017  to  8.4%  in  2018 
(below  the  EU  average  of  10.4%).  However,  the 
NEET  rate  differs  greatly  between  regions  in 
Portugal, from 17.8% in the Azores to 7.2% in the 
Centro region. The share of NEETs covered by the 
Youth  Guarantee  (55.4%)  remains  well  above  the 
EU  average  (40.9%)  and  more  than  two  fifths  of 
those leaving the Youth Guarantee registry in 2018 
(44.0%)  accepted  an  offer  within  four  months  of 
registration  (an  increase  of  almost  4pps  from 
2017). Outreach to the most disengaged to ensure a 
wider  Youth  Guarantee  coverage  and  more 
effective  results  are  remaining  challenges  but 
overall Portugal has established a significant set of 
measures  in  terms  of  personalised  guidance  and 
activation  to  improve  labour  market  access  and 
further  reduce  long-term  unemployment  of  young 
people. 

After  strong  improvements  in  the  past,  the 
positive trend in the labour  market integration 
of  low-skilled  people  stopped  recently.  The 
employment rates of high-skilled, medium-skilled, 
and low-skilled workers differ less in Portugal than 
in  most  other  Member  States.  There  were 
particularly  strong  gains  in  the  employment  rates 
of  low-skilled  people  between  2016  and  2018. 
These  were  greater  than  gains  for  medium-skilled 
workers  (Graph  4.3.2).  However,  this  pattern 
changed  in  Q1-2019.  While  the  employment  rate 
of  medium-skilled  workers  continued  to  rise  by 
more 
low-skilled  workers 
than  2%, 
remained broadly stable. 

that  of 

Source: Eurostat 

Youth  unemployment  remains  relatively  high, 
though  measures have been taken to tackle the 
challenge.  Youth  unemployment  (15-24)  stood  at 
18.2%  in  Q3-2019,  above  the  EU  average  of 
14.4%. The proportion of young people neither in 
employment nor in education or training (NEETs) 

38 

02468101214161820024681012Q1-2011Q3-2011Q1-2012Q3-2012Q1-2013Q3-2013Q1-2014Q3-2014Q1-2015Q3-2015Q1-2016Q3-2016Q1-2017Q3-2017Q1-2018Q3-2018Q1-2019Q3-2019Persons Seeking Work but Not Immediately AvailableUnderemployed Part-Time WorkersPersons Available to Work but Not SeekingUnemployment rate (rhs)% of active population% 
  
4.3. Labour market, education and social policies* 

Graph 4.3.2:  Annual change in the employment rate of low 
and medium-skilled workers (age 20-64) since 
Q1-2009 

law  was  recently  approved  to  promote  gender 
balance  in  public  administration  bodies,  setting  a 
40%  minimum 
for  each  gender's 
representation.  

threshold 

to  a 

job-specific 

training.  About 

Active  labour  market  policies  have  recently 
focused  on  boosting  permanent  employment 
24,300 
and 
employment  contracts  have  taken  effect  since  the 
hiring  support  measure  Contrato-Emprego  was 
introduced in January 2017. Among these, 87% are 
open-ended  contracts.  Under 
the  professional 
traineeship measure Estágios Profissionais, around 
64%  of  the  received  applications  were  approved, 
corresponding 
total  64,574  approved 
traineeships  since  2017.  At  the  same  time,  7,500 
traineeship  contracts  have  been  converted  into 
open-ended 
the  Prémio-
Emprego,  a  financial  support  measure.  Recently, 
some changes were made to the legal framework to 
make these measures more efficient and effective. 
After  a  considerable  delay,  implementation  of  the 
Contrato-Geração  measure,  designed  to  promote 
permanent 
first-time 
jobseekers and the long-term unemployed (over 45 
years  old),  began  in  April  2019.  A  temporary 
incentive  (Converte+)  was  introduced  to  support 
the  conversion  of  fixed-term  contracts  to  open-
ended ones (up to the end of 2019), in line with the 
tripartite agreement (see below).  

employment 

for  both 

contracts 

through 

The  emphasis  of  active  labour  market  policies 
increasingly  moved  towards  providing 
has 
targeted  training.  The  proportion  of  registered 
jobseekers participating in training rose from 11% 
in  the  beginning  of  2016  to  about  18%  in 
December  2019.  In  total,  64.5%  of  active  labour 
market  policies  coverage  is  training  related.  In 
2018, 47% of the  workers’ educational attainment 
was  below  the  levels  required  by  their  jobs 
(compared  with  an  EU  average  of  26%).  Still,  in 
2018  Portugal  was  one  of  the  best  performers  in 
the  EU  for  having  a  low  rate  of  dispersion  of 
employment  by  educational  level  (23).  However, 
the 
incentives  for  unemployment  and  social 
benefits  recipients  to  accept  job  opportunities  in 
the  first  months  of  unemployment  are  low:  the 
unemployment trap in Portugal amounts to 82%, as 
compared  to  an  EU  average  of  69%  in  2018 
and  Benefits 
(European  Commission  Tax 
Database). 

(23)  European Commission calculations based on Eurostat 

Source: Eurostat 

labour  market  participation 

Women’s 
is 
increasing,  while  the  gender  pay  gap  remains 
above  the  EU  average.    Women’s  employment 
rate continued to improve, reaching 72.1% in 2018 
(compared  to  an  EU  average  of  67.4%).  The 
gender  employment  gap  was  7.5  pps,  below  the 
EU  average  of  11.5%  (see  further  Box  4.3.1).  
However,  the  unadjusted  gender  pay  gap  remains 
above the EU average. It narrowed from 17.8% in 
2015  to  17.5%  in  2016  and  16.3%  in  2017,  still 
above the EU average of 16% in 2017. 

Portugal  has  introduced  legislation  to  address 
the  gender  pay  gap.    Measures  include  the 
obligation  for  companies  that  are  notified  by  the 
Working Conditions Authority to produce a report 
about differences in remuneration between women 
and  men  (for  companies  with  250+  employees  in 
the  first  two  years,  then  extended  to  include 
companies  with 50+ employees), the right for any 
worker to request the Commission  for Equality in 
Labour  and  Employment  to  issue  a  binding 
Opinion  on 
the  existence  of  sex-based  pay 
discrimination,  and  the  publication  of  official 
statistics:  a  sector-level  barometer  (which  was 
implemented  in  2018  and  includes  the  adjusted 
gender pay  gap) and a company-level assessment, 
by  profession  and  level  of  qualifications.  Another 
recent 
law  establishes  a  minimum  gender 
for  public  company 
representation 
boards  from  2018  (33.3%)  and  listed  companies 
(20%,  increasing  to  33.3%  from  2020).  Another 

threshold 

39 

Q1-2009Q1-2010Q1-2011Q1-2012Q1-2013Q1-2014Q1-2015Q1-2016Q1-2017Q1-2018Q1-2019-4-3-2-101234-3-2-101234Change int he employemnt rate of low-skilled, over four quartersChange in employment rate of medium-skilled, over four quarters ppspps  
                                                           
4.3. Labour market, education and social policies* 

is  designed 

labour  code  reform 

The 
to 
encourage  collective  bargaining.  The  individual 
hour bank (an arrangement to compensate workers 
for  overtime  by  providing  additional  leave)  has 
ceased to exist and can now be implemented only 
through  collective  bargaining  or  joint  agreements, 
subject  to  internal  referendum.  Current  individual 
hour bank agreements will expire in October 2020. 
All collective agreements, collective contracts and 
firm  agreements  can  only  be  changed  if  they 
propose  more  favourable  criteria  for  the  worker 
than  the  current  Labour  Code.  Additionally,  the 
requirement  to  terminate  a  collective  agreement 
must  be  attached  with  a  global  negotiation 
proposal  and  a  justification  on  the  economic, 
structural  or  maladjustment  reasons  to  terminate 
the current agreement. 

that 

In  parallel, 

Policy measures to improve labour relations are 
being  implemented.  Portugal  is  boosting  the 
capacity of its labour authority by recruiting labour 
inspectors.  This  means 
the  number  of 
inspectors  should  be  closer  to  the  International 
Labour Organisation reference ratio by the end of 
is 
the 
2019. 
developing  its  information  system  to  improve  the 
sharing  of  information.  It  is  also  improving  its 
planning  capacity  and  dispensing  its  staff  from 
certain  administrative  tasks.  A  recent  assessment 
of  the  effectiveness  of  the  Law  n.º  63/2013  to 
restrain 
that 
self-employment 
voluntarily  regularised  cases  (as  a  proportion  of 
irregular  situations  detected)  increased  from  34% 
in 2014 to 49% in 2017 and 58% in 2018. 

labour  authority 

shows 

false 

Minimum  wages  keep  increasing.  The  monthly 
minimum wage increased to €600 in 2019 and the 
government  approved  a  new  increase  to  €635  for 
2020.  This  places  the  Portuguese  minimum  wage 
among the highest in the EU when compared to the 
median  wage  in  the  same  country,  with  a  ratio  of 
61% (latest OECD data for 2018). Consequently, a 
comparatively large proportion of workers (almost 
20%) earn the minimum wage. While increases in 
the minimum wage improve jobseekers’ incentives 
to accept a job, they may also increase risks to the 
employment  of  young  and  low-skilled  workers. 
The  government  also  announced  its  intention  of 
gradually  raising  the  minimum  wage  to  €750  in 
2023,  taking  into  account  the  views  of  social 
partners,  employment  dynamics  and  economic 
growth.  

Cooperation  between  public 
employment 
services  (PES)  and  other  services  is  improving, 
but the proportion of unemployed people using 
PES  remains  low.  Following  a  downward  trend 
since  2008,  the  proportion  of  unemployed  people 
using PES to find a job fell from 36.7% in 2017 to 
34.7%  in  2018,  well  below  the  EU  average  of 
44.3%.  In  Q3-2019  about  68%  of  job  offers  were 
filled,  mainly  in  the  tertiary  sector  (GEP  2019). 
The  activation  capacity  of  the  PES  is  low  partly 
because  of  the  negative  perceptions  of  both 
jobseekers  and  employers,  but  also  owing  to 
competition  from  other  market  providers.  The 
information  sharing 
current  mechanisms 
for 
between 
the  social  security 
the  PES  and 
administration  ensures  overall  coordination.  The 
Portuguese PES have been  working on improving 
individualised services to the people least likely to 
find  a  job  such  as  the  long-term  unemployed  and 
low-skilled people, focusing on up-skilling and re-
skilling  measures.  The  PES  authorities  are  also 
working  on  establishing  protocols  with  other 
public administration services. 

to 

to 

to 

the 

labour  code 

tackle 
Changes 
precariousness  and  address 
labour  market 
segmentation  entered  into  force  in  October 
2019.  In  a  context  of  persistent 
temporary 
employment  (20.4%  of  workers  on  temporary 
contracts  in  Q2-2019,  well  above  the  EU  average 
of  12.6%),  the  changes  introduced  by  Law  n.º 
93/2019  are  designed  to  reflect  the  tripartite 
agreement  signed  in  2018.  The  most  significant 
changes  relate 
temporary 
to  disincentives 
employment  and  promotion  of  open-ended  hiring. 
The maximum duration of fixed-term contracts has 
been reduced from three to two years and, to avoid 
an  abusive  use  of  temporary  employment,  firms 
are  also  obliged  to  justify  their  use  of  temporary 
contracts.  The  maximum  duration  of  very  short-
term  contracts  has  been  increased  from  15  to  35 
days,  with  an  unchanged  annual  limit  of  70  days, 
and these contracts can now be used by all sectors 
of  activity  if  proper  justification  is  provided.  The 
probationary  period  of  open-ended  contracts  for 
first-time 
long-term  unemployed  people  and 
jobseekers has been increased from 90 to 180 days 
and the number of training hours per year has been 
increased  from  35  to  40  for  all  workers.  Firms 
using more fixed-term contracts than is allowed in 
their sector will have to pay a progressive turnover 
tax  as  of  2021.  All  these  measures  should  lead  to 
progress on SDG 8. 

40 

4.3. Labour market, education and social policies* 

Box 4.3.1: Monitoring performance in light of the European Pillar of Social Rights 

The European Pillar of Social Rights is a compass  for a renewed  process of upward convergence towards 
better working and living conditions in the European Union. It sets out twenty essential principles and rights 
in  the  areas  of  equal  opportunities  and  access  to  the  labour  market;  fair  working  conditions;  and  social 
protection and inclusion.  

is 

has 

Portugal 

good,  with 

The  Social  Scoreboard  supporting  the 
European  Pillar  of  Social  Rights  shows 
that 
achieved 
improvements in several areas, although 
challenges  remain.  The  labour  market 
high 
performance 
employment, low unemployment (and low 
long-term  unemployment)  and  a  reduced 
gender  employment  gap.  Portugal  also 
performs  better  than  average  in  providing 
Income 
to  childcare  services. 
access 
inequality  has  decreased  and  is now  close 
to  the  EU  average  for  the  first  time  in 
decades,  while  the  rate  of  risk  of  poverty 
or social exclusion continues to fall.  

education 

in  progress,  and  both 

Vulnerable  groups  are  nonetheless  still 
at  risk  of  being  left  behind.  The  overall 
skill  level  of  the  adult  population  is  low, 
particularly  as  regards  digital  literacy.  In 
2017,  half  of  the  Portuguese  population 
lacked  basic  digital  skills,  with  27% 
having  none  at  all.  Upskilling  measures 
are 
student 
performance  and  the  rate  of  early  leavers 
from 
improved. 
Technological  change  will  require  a  more 
skilled workforce, raising barriers to entry 
into  the  labour  market  for  low-skilled 
their 
workers.  There 
is  a 
economic 
further 
aggravated  by  the  low  adequacy  of  the 
social  protection  system.  Despite  recent 
reduction 
improvements, 
capacity  of  social  transfers  (other  than 
pensions) is comparatively low in Portugal 
(23.8% against 34% in the EU as a whole).  

situation  may  be 

the  poverty 

have 

that 

risk 

Measures  are  in  progress  to  address 
labour  market 
and 
encourage  collective  bargaining,  while 
promoting a better work-life balance. A 
tripartite  agreement  has  led  to  changes  in  the  labour  code  and  in  the  code  of  contributory  regimes  of  the 
social security the aim being to reduce the large proportion of workers on temporary contracts. Additionally, 
legislative measures and a national strategy to promote work-life balance have been adopted (also involving 
tripartite consultations and collective bargaining), designed to promote equal rights, including reducing the 
gender pay gap, or improving working time flexibility.  

segmentation 

41 

 
 
Recent years have seen a sustained recovery in 
collective  bargaining.  The  number  of  new  or 
renewed collective agreements has increased since 
2015, with a  significant impact on their coverage. 
In  2019,  new  collective  agreements  accounted  for 
19.2%  of  the  total  (surpassing  the  2018  level  of 
18.6%) while their share of coverage stood at 9.9% 
(7.6% in 2018). The total coverage from collective 
agreements  (new  or  renewed)  stands  close  to 
883,800  workers  (over  994,000  in  2018).  Wage 
setting also increased in collective bargaining, with 
the  most  significant  increases  reflected  in  sectors 
such  as  administrative  and  support  service 
activities,  construction,  health  and  social  support 
activities  and  tourism.  Altogether,  wage  setting  at 
collective  bargaining  covers  about  730,880 
workers (about 15% of the employed population).  

4.3.2.  SOCIAL POLICIES* 

Poverty  and  income  inequality  continued  to 
decrease in 2018. The number of people at-risk of 
poverty or social exclusion continued to fall  from 
23.3% in 2017 to 21.6% in 2018.For the first time, 
the  figure  fell    slightly  below  the  EU  average  of 
21.9% (24). This reflects improvements in all three 
components  of  this  indicator  (see  Graph  4.3.3). 
However,  the  risk  that  unemployed  or  elderly 
people may fall victim to poverty continues to give 
cause  for  concerns.  The  proportion  of  people  at-
risk-of-poverty fell, from 18.3% in 2017 to 17.3% 
in 2018 (25), and is now below pre-crisis levels but 
still  above  the  EU  average  (17.1%).  Severe 
material  deprivation  continued  to  decrease  from 
6.9% in 2017 to 6.0% in 2018. Finally, the rate of 
low work intensity fell from 8.0% in 2017 to 7.2% 
in 2018, still above pre-crisis levels, but below the 
EU  average 
inequality,  as 
measured  by  the  ratio  of  the  income  received  by 
the  richest  20%  of  the  population  to  that  of  the 
poorest 20%, declined significantly, and is now at 
the  EU  average  of  5.2.  The  income  share  of  the 
poorest  40%  of  the  population  is  also  improving 

(9.0%). 

Income 

(24)  Flash  estimates  indicate  that  the  AROP  rate  continued  to 
flash  estimates  produced  by 

decrease  Experimental 
Eurostat for income year 2018. https://bit.ly/34HOcIG  
(25)  Provisional data from National Statistics Office (INE): the 
Survey on  Income and Living Conditions held in 2019 on 
previous year incomes shows that 17.2% of the population 
was at-risk-of-poverty in 2018, one decimal point (pp) less 
than in 2017. 

4.3. Labour market, education and social policies* 

but  remains  below  the  EU  average  (20.5%  v. 
21.5%). 

Graph 4.3.3:  At-risk-of-poverty or social exclusion rate and 

its components 

Source: Eurostat 

employees 

Poverty  risks  fell  for  employed  people,  while 
rising  for  unemployed,  inactive  and  elderly 
people. The risk of poverty for the employed was 
9.7% in 2018, 1.1 pp lower than in 2017. Still, the 
risk  of  poverty  is  almost  two  times  higher  for 
temporary 
permanent 
employees.  Although  the  number  of  unemployed 
people  continues  to  fall,  increased  overall  income 
levels  and  a  weak  social  protection  system  (see 
Section  4.3.2)  resulted  in  an  increase  in  poverty 
risks  for  the  unemployed,  from  44.9%  in  2016  to 
45.7% in 2017. The risk of poverty for the elderly 
population also increased to 17.7% in 2017, 0.7 pp 
more than in 2016. 

than 

for 

Poverty risks remain particularly high in rural 
areas. The proportion of people at risk of poverty 
is  significantly  larger  in  rural  areas  than  in  cities 
and  islands  (regiões  autónomas)  when  compared 
to  the  proportion  of  people  at-risk  of  poverty  in 
mainland Portugal. In 2017, only the metropolitan 
area  of  Lisbon  (12.3%)  had  a  significantly  lower 
rate  of  poverty  than  the  national  average  (17.3%) 
(see Section 4.4.3). 

The poverty-reducing impact of social transfers 
is comparatively low in Portugal and minimum 
income  adequacy  remains  low.  In  2018,  social 
transfers (excluding pensions) reduced the number 

42 

05101520253020052006200720082009201020112012201320142015201620172018% of populationPeople at Risk of Poverty or Social ExclusionPeople at Risk of Poverty After Social TransferSeverely Materially Deprived PeoplePeople Living in Households with Very Low Work Intensity                                                           
  
4.3. Labour market, education and social policies* 

of  people  at-  risk  -of-  poverty  by  23.8%  in 
Portugal.  This  is,  significantly  below  the  EU 
average  of  34%,  and  is  classified  as  a  ‘to  watch 
situation’ in the social scoreboard (see Box 4.3.1). 
The  poverty-reducing  impact  of  social  transfers 
has actually decreased since 2014, although this is 
also  due  to  the  reduced  impact  of  unemployment 
benefits  as  a  result  of  falling  unemployment.  In 
August  2019,  the  monthly  mean  values  for  the 
minimum  income  were  €117.37  per  person  and 
€260.20  per  household,  which  does  not  allow  to 
escape  poverty.  The  adequacy  of  the  minimum 
income support is well below the EU average (26). 

Rising  housing  prices  increase  the  financial 
pressure  on  households  and  create  issues  of 
affordability, especially for the most vulnerable 
(27). Housing prices increased by 10% in 2018 and 
by  9%  in  2017,  although  in  2019  (Q1  data)  there 
was a deceleration of the price increases on a year-
on-year basis (see Section 4.2). Portugal is among 
the  countries  where  the  burden  of  housing  costs 
fell  for  the  population  as  a  whole  between  2007 
and  2018  but  increased  for  poor  households 
(+25.4%).  In  2018,  the  rate  of  poor  households 
overburdened  by  housing  costs  stood  at  22.3%, 
nearly  ten  times  higher  than  other  households 
(2.3%).  Between  2007  and  2018,  the  average 
mortgage/rent arrears rate fell from 3.1% to 2.8%. 
However, among poor households the rate in 2018 
(6.8%) was still higher than in 2007 (6.6%).  

The  state’s  investment  in  social  housing  has 
traditionally been weak. The  major  metropolitan 
rehousing programmes focusing on the eradication 
of  shanty-town  enabled  the  construction  of  over 
30,000  social  dwellings  between  1994  and  2005 
and reduced the need of the metropolitan areas for 
social  housing  to  39%  of  the  1990s  level  (IHRU, 
2018). The public housing supply in Portugal now 
accounts  for  2%  of  the  total  housing  supply, 
the  EU  as  a  whole.  The 
against  5% 
government’s  target  is  to  reach  the  EU  average. 
According  to  the  national  statistics  office,  severe 
housing deprivation affects 26,000 families, with a 
high  concentration  of  families  in  the  Lisbon  and 
Porto metropolitan areas.  

in 

(26)  Benchmarking  exercise  in  Social  Protection  Committee 
(see proposal for the Joint Employment Report 2020) 

(27)  ESPN, 2019 

companies 

Portugal  is  taking  action  to  address  housing 
affordability. The various policy measures include 
tax  incentives  for  urban  leases,  increasing  the 
public  housing  supply  by  financing  municipalities 
and  re-allocating  public  buildings  to  residential 
purposes,  and  financing  and  tax  benefits  for  the 
corporate  sector  (real  estate  developers  and 
affordable 
construction 
housing  and  regeneration  services).  In  addition  to 
the ‘new generation of housing policies’, launched 
by  the  Portuguese  government  in  May  2018,  a 
basic  law  on  housing  came  into  force  in  Portugal 
for  the  first  time  in  October  2019.  The  law 
establishes the state as the guarantor of the right to 
housing  and  responsible  for  establishing  a  system 
of  access  that  is  compatible  with  household 
income. The law emphasises the ‘social function of 
housing’ rather than social housing as such.  

offering 

Despite  recent  efforts,  work-life  balance  seems 
to  have  retroceded  in  recent  years.  Work-life 
reconciliation  evolved  positively  until  2011  (28), 
however,  has  since  been  decreasing.  The  average 
family  expenditure  per  child  (0-17)  as  a  share  of 
GDP  per  head  was  6.7%  against  and  EU  average 
of 12.4% in 2017 (only slightly increased from the 
2008  level  of  6.4%)  (29).  The  OECD  ‘better  life 
index  on  work  life  balance’  (30)  highlighted  that 
Portugal‘s low fertility rate, at 1.28 (the lowest in 
the OECD) is due to Portuguese families often not 
having  more than one child  mainly due to lack of 
support.  Enrolment  of  children  below  3  years  of 
age  in  childcare  has  risen  sharply  over  the  last 
decade  to  47.1%  compared  to  an  EU  average  of 
35.1%  in  2018.  However,  the  situation  is  less 
positive  as  concerns  childcare  provision  for 
between  4  and  6  year  olds)  performs  worse, 
especially in metropolitan areas.  

implemented 

Legislative  changes  were 
to 
promote a better work-life balance, including a 
In 
legal  status 
new 
December  2018,  Portugal 
introduced  a  new 
national  strategy  for  promoting  a  better  balance 
between professional, personal and family life. The 
aim  is  to  achieve  genuine  equality  between  men 

informal  carers. 

for 

(28)  Portuguese  Well  Being  Index  (INE,  National  Statistics 
Office,  2017).  The  index  measures  people’s  capacity  to 
reconcile working hours with aspects of personal life, such 
as family, friends or leisure. 

(29)  see ESDE 2019 
(30)  http://www.oecdbetterlifeindex.org/topics/work-life-

balance/ 

43 

                                                           
                                                           
4.3. Labour market, education and social policies* 

and  women.  The  plan  involves,  among  others, 
tripartite  consultations  and  collective  bargaining, 
working time flexibility and new rights in relation 
to  working  time  accounts.  Moreover,  a  new  legal 
status  for 
in 
September 2019, granting them a set of rights  and 
establishing 
the  supporting  measures.  It  also 
entitles informal carers to fiscal benefits and grants 
access to the voluntary social insurance scheme.  

informal  carers  was  approved 

Coverage  of  long-term  care  and  specific  care 
needs  of  elderly  people  was  improved.  The 
coverage  rate  of  the  main  services  for  the  elderly 
people was 12.6% in mainland Portugal, reflecting 
a 9 pps growth rate from 2008 to 2018. While 66% 
of  mainland  municipalities  had  an  above-average 
coverage rate, the majority of municipalities in the 
metropolitan areas of Porto and Lisbon, and in the 
Algarve  region,  have  below  average  coverage 
rates.  The  number  of  workers  in  this  sector 
remains  well  below  the  EU  average  (see  Section 
4.3.3). 

despite  improvements,  remains  above  the  EU 
average.  There  is  still  a  substantial  gap  in  self-
reported  unmet  needs  between  low-income  and 
high-income groups (4.2% v 0.3%), above the EU 
average, although it has narrowed since 2017. Out-
of-pocket payments are amongst the highest in the 
EU  at  27.5%.  The  reported  financial  burden  of 
medical  care  in  2017  is  relatively  high  and  about 
8.1% of households are estimated to have suffered 
from  catastrophic  health  spending  in  2015  (up  to 
30%  for  the  poorest  income  quintile  (31)  (WHO, 
2019).  The  removal  of  user  charges  in  primary 
care  that  was  planned  for  in  2019  (see  Section 
4.1.3  for  the  fiscal  implications)  was  expected  to 
reduce 
financial  burden,  out-of-pocket 
payments (although to a limited degree) and unmet 
need  for  care,  incentivising  patients  to  use  their 
primary care providers rather than emergency care. 
The  degree  to  which  this  is  achieved  will  depend 
on  the  ability  of  the  Portuguese  primary  care 
system  to  deal  with  the  increase  in  activity  and 
their effectiveness as gatekeepers. 

the 

Healthcare 

The health status of Portuguese citizens is good, 
but  certain  areas  show  room  for  improvement 
and  health 
inequalities  remain.  Treatable 
mortality in Portugal is below the EU average (89 
per 100,000 vs. 93 in the EU), and the country also 
has  one  of  the  lowest  avoidable  hospitalisation 
rates  in  the  EU,  with  improvements  in  primary 
care reported as one of the contributing causes for 
the  reduced  admission  rates.  However,  certain 
disease areas show relatively higher numbers with 
notably higher prevalence of diabetes, mortality of 
respiratory  diseases  and  anti-microbial  resistance. 
Furthermore,  health  inequalities  by  gender  and 
socioeconomic  status  remain  and  Portugal  will 
face  relatively  greater  challenges  in  future  as  a 
result of population ageing (see Box 4.3.2). 

Accessibility  of  care  and  financial  protection 
are  areas  of  concern,  but  the  planned  removal 
of  primary  care  user  charges  is  likely  to 
alleviate  them.  Low-income  groups  report  lower 
self-rated  health  status  and 
there  are  still 
substantial  differences  as  regards  self-reported 
unmet needs by income group. A 2.1% share of the 
Portuguese  population  report  unmet  needs  due  to 
cost,  distance  or  waiting  time  (2018),  which, 

remain 

There are major health differences between the 
wider  metropolitan  areas  of  Lisbon  and  Porto 
and  the  other  regions.  The  difference  in  self-
reported  unmet  needs  for  medical  care  between 
groups living in rural and in urban areas is higher 
than  in  many  other  Member  States.  Healthcare 
resources  are  unevenly  distributed  between  and 
within  regions  and  transport  costs  are  often  not 
reimbursed,  but  self-reported  unmet  needs  due  to 
low.  There  are  high-level 
distance 
investments  in  infrastructure  as  well  as  incentive 
programmes for the healthcare  workforce in order 
to address underserved areas. Recent reforms have 
also facilitated the provision  of care to patients in 
other regions than their region of affiliation. Even 
though  the  number  of  nurses  is  below  the  EU 
average, the health workforce continues to increase 
and  the  number  of  registrations  with  a  general 
practitioner  stood  at  93%  in  2018.  Challenges 
remain  to  ensure  adequate  health  care  provision 
between  regions,  including  the  distribution  of 
health  professionals  (recruitment,  education  and 
in 
retention),  as  well  as 
infrastructure and  medical equipment (see Section 
4.1.2). 

investment  needs 

(31)  Before  the  wide  set  of  co-payment  exemptions  introduced 

in 2016. 

44 

                                                           
4.3. Labour market, education and social policies* 

(Continued on the next page) 

45 

Box 4.3.2: Demographic ageingDemographic ageing has become an EU-wide challenge with long-term socio-economic implications. Europeans are living longer than ever before, and the inversion of the age pyramid calls for major rethink in terms of policymaking. While the proportion of working-age people in the EU is shrinking, the number of older people (65+) in the EU is projected to rise, peaking at 149.2 million in 2050, 28.5 % of the total population(1).   Portugal’s demographic projections show a sustained decline in total population over the decades ahead, sharper than EU average.  In 2018, 21.8% of the Portuguese population were aged 65+, up from 16% in 2000 and 11% in 1980. Portuguese 65-year-old could expect to live for a further 20 years (the EU average), but would probably have some disability for 13 of these years (above the EU average). Portugal is among the five EU countries where people aged 55+ are projected to account for almost half (47.1 %) of total population by 2050. The 2018 Ageing Report (2) forecasts to a decline in population from 10.3 million in 2018 to 9.1 million in 2050. Managing the challenges associated with increased longevity and declining fertility rates to ease the pressures of demographic ageing. Notwithstanding the slightly improving trend, Portugal still has the second lowest fertility rate in the EU (1.4 births per woman, compared with 1.6 in the EU as a whole). Portugal is estimated to remain one of the EU countries with the longest average life expectancy. At the same time, projections for net migration suggest that more young migrants will move into Portugal than out, decelerating the pace of population ageing in Portugal. In contrast to recent negative net migration flows (2011-2016), annual net migration as a percentage of population over the 2016-2060 period is expected to rise by 0.2% (3). This can be attributed to the economic recovery, with significant employment growth. Population ageing puts pressure on the labour market and public finances and requires coordinated and integrated policy responses. Portugal is projected to lose more than one third of its total labour force by 2070. A more specialised and skilled workforce will be required to maintain a competitive economy. Yet early school leaving rates in Portugal are a source of concern (11.8% versus an EU average of 10.6%) with men significantly above (14.7%). Due to low birth rates, the school-age population is expected to decline, with the pace of reduction increasing after 2030. By 2040, the drop could exceed 20% (compared to 2020 levels) (4). Investing and reinforcing education and training policies seems adequate and EU funds could amplify their impact.  As for public finances, population ageing will demand balanced policy and investment choices. On the one hand, it will push up public expenditure on social welfare (especially on the pension system and social security in general) and on healthcare. On the other hand, the falling school-age population may raise efficiency concerns as regards education spending. Here, an appropriate balance should be struck between reconsidering the school network and ensuring adequate infrastructure and quality. The sustainability of Portugal’s pension system will be tested by population ageing, and a rethink is required. The old-age dependency ratio (i.e. people aged 65+ as a proportion of those between 16 and 64) already stood at 33.9% in 2018, above the euro-area average of 31% (5). The ratio is projected to increase significantly by 35.1 pps to 67.2% by 2070. Thus, Portugal would go from having 3.1 working-age people for every person aged 65+ to only 1.5. Steps have already been taken to make the pension system more                                                            (1) EUROSTAT (2019), Ageing Europe-Looking at the lives of older people in the EU, Population and social conditions Collection: Statistical books, Publications Office of the European Union, Luxembourg (2) European Commission (2017), the 2018 Ageing Report-Underlying Assumptions and Projection Methodologies,  Publications Office of the European Union, Luxembourg (3) European Commission (2018), 2018 Ageing Report (4) Education and Training Monitor 2019 (5) 2018 Ageing Report  
 
  
 
Box (continued) 

4.3.3.  EDUCATION AND SKILLS* 

system 

education 

The  Portuguese 
has 
experienced  progress  in  the  last  decade,  but 
there  are  still  important  challenges  to  address. 
Between  2009  and  2018,  the  rate  of  early  leavers 
from  education  and  training  decreased  by  two 
thirds  (from  30.9% 
tertiary 
education  attainment  grew  from  21.3%  to  33.5%. 
Basic skills proficiency, as measured by the OECD 
Programme  for  International  Student  Assessment 

to  11.8%)  and 

(PISA) increased considerably, and is now around 
the  EU  average  for  all  three  tested  subjects 
(reading,  mathematics  and  science) 
(OECD, 
2019a). However, the high level of grade repetition 
and  high  dropout  rates  persist,  and  a  high 
percentage  of  adults  have  not  completed  their 
upper 
these 
challenges would lead to progress on SDG 4. 

studies.  Addressing 

secondary 

in  education  persist. 
Equality  challenges 
Students 
socio-economic 
deprived 
backgrounds  or  who  were  born  outside  Portugal 

from 

46 

sustainable. However, recent extensions in special pension and early retirement reforms have entailed additional pension spending on top of the underlying upward trend driven by ageing. Healthcare expenditure in Portugal is below the EU average and will be substantially increased to cope with an ageing society. Public expenditure on healthcare is projected to increase from 5.9% of GDP in 2016 (below the EU average of 6.8%) to 8.3% of GDP by 2070 (above the EU average of 7.7%) (6). In the case of long-term care, the relatively low current coverage means that ageing would further increase unmet demand. These projections illustrate a no-policy-change scenario, which could be mitigated by measures to improve the cost-efficiency of the health system (see Sections 4.1.2. and 4.3.2.).  Rural areas seem to be particularly affected by population ageing. Despite the support of EU funds to counter depopulation and improve the competitiveness and inclusiveness of rural areas, these are still lagging behind urban areas, facing problems including depopulation, limited access to basic services and lower per-capita income. The lack of generational renewal in rural areas contributes to the abandonment of these territories and it increases the challenges posed by technology and innovation gaps between rural and urban areas.  The Portuguese government has identified demographic challenges as one of the main priorities for the current legislature. Portugal is developing policy measures to improve the overall sustainability of the health system, to enable it to cope better with increased demand due to ageing. The State budget for 2020 foresees responses to the growing ageing of the Portuguese population in terms of healthcare, namely by strengthening the national network of long-term and palliative care and by consolidating and extending the home hospitalisation program.  In addition, a new law establishing the status of “informal caregivers” was adopted recently. The government also acknowledges the role that migration can play to tackle demographic challenges approving the National Implementation Plan for the Global Compact for Migration. It has also identified a roadmap encouraging of the development of low-density territories aiming at the settlement of the population, job creation, reduction of regional asymmetries, cohesion and territorial competitiveness, resulting from the Interior Enhancement Program (former National Program for Territorial Cohesion).  Targeted investment of EU Funds in the next Multiannual Financial Framework will play a key role in helping Portugal cope with the pressures of demographic ageing. EU Funds can support business and infrastructure development, investment in human capital and social inclusion to help alleviate the pressures arising from population ageing while providing suitable goods and services for this cohort. They can also help turning the demographic challenge into an opportunity, developing new products and services aimed at a growing and changing consumer market.                                                            (6) 2018 Ageing Report  
 
  
 
 
4.3. Labour market, education and social policies* 

primary  education  institutions  made  1,400  more 
places  available  for  children  aged  between  three 
and five.  

the 

facing 

The  main  challenges 
teaching 
profession  in  Portugal  are  high  job  instability, 
an  ageing  teaching  workforce  and  a  lack  of 
certain  skills.  In  2017-2018,  the  proportion  of 
non-permanent  teachers  (on  temporary  contracts) 
was  16.9%  in  primary  education  and  21.4%  in 
secondary  education 
(DGEEC,  2019).  New 
permanent positions have been created, enabling 3 
260  teachers  on  temporary  contracts  to  become 
permanent  members  of  staff  in  2017-2018,  and  3 
319  in  2018-2019.  In  2017,  fewer  than  1%  of 
teachers  in  ISCED  1-3  (35)  were  aged  below  30 
(9.4%  at  EU  level).  According  to  the  Ministry  of 
Finance, 10 761 teachers are due to retire by 2023 
-  around  11%  of  the  current  work  force.  In  some 
subjects,  where  the  majority  of  teachers  are  over 
50,  the  shortage  is  already  evident.  According  to 
the  2018  OECD  Teaching 
and  Learning 
International  Survey  (OECD,  2019c),  22%  of 
teachers report  a strong training  need for teaching 
in a multicultural or multilingual setting, and 12% 
for  the  use  of  information  and  communication 
technologies (ICT) in teaching. 

is  increasing,  although 
Tertiary  attainment 
many  students  leave  tertiary  studies  without 
graduating. Higher education enrolment increased 
in  2018-2019,  particularly  in  short  term  technical 
and professional training (DGES, 2019). However, 
only  30%  of  students  who  enter  a  bachelor 
programme  graduate  within 
three  years  (the 
expected  duration  of  the  programme  for  most 
fields).  The  government  has  taken  a  range  of 
measures  designed  to  ease  the  access  to  higher 
education  and  broaden  enrolment:  reducing  fees, 
increasing 
improving 
the  scholarship  budget, 
access  conditions 
for  students  with  special 
education  needs  and  exempting  them  from  tuition 
fees,  providing  more  housing  facilities,  and 
increasing 
the  number  of  university  places 
available in less densely populated areas.  

Educational  performance  differs  between  the 
autonomous regions of Madeira and the Azores 
and  mainland  Portugal.  Historically,  both 
archipelagos  have  lagged  behind  the  mainland 

(35)  ISCED  1-3 corresponds to  primary  and  secondary  general 

education 

in 

are  more  likely  to  repeat  grades,  to  leave  school 
prematurely  and  to  have  a  lower  performance. 
PISA  2018  (OECD,  2019a)  shows  that  the  scores 
difference  between  advantaged  and  disadvantaged 
students  are  95  points 
reading,  which 
corresponds  to  around  three  years  of  schooling. 
Disadvantaged  pupils  are  significantly  less  likely 
to  complete  tertiary  education.  PISA  2018  also 
reports  that  the  mean  score  in  reading  of  students 
with  a  migrant  background  are  on  average  26 
points below those with a native background. This 
gap  is  particularly  large  for  foreign-born  (59 
points)  while  it  is  much  more  limited  for  native-
born with a migrant background (23 points).  

fall 

Public investment on education is growing, but 
it  is  still  far  from  the  levels  seen  before  the 
economic crisis. After a fall in its ratio to GDP in 
2014-2016  (reflecting  a 
in  expenditure, 
combined with GDP growth), public investment on 
education reached 5.0% of GDP in 2017, above the 
EU average (4.6%) but still far from the 2013 level 
(5.9%). In the last decade, annual expenditure per 
student  at  primary  and  secondary  levels  remained 
almost  constant  and  below  the  EU  and  OECD 
averages (OECD, 2019b). The budget cut in higher 
education  (between  2010  and  2016 (32),  estimated 
at  20%,  was  buffered  by  a  15%  reduction  in 
student enrolment numbers. Large investments will 
be  required  in  the  near  future  to  upgrade  and 
renovate 
infrastructure 
(European Commission, 2019a, 2019g). 

existing 

school 

the 

Participation  in  early  childhood  education  and 
care  is  close  to  the  EU  average.  In 2018,  50.2% 
of children under the age of three were enrolled in 
formal  childcare.  Participation  for  children  aged 
between four and the age at which primary school 
attendance is compulsory (six) was 94.2% in 2017, 
almost  reaching 
the  EU  average  of  95.4%. 
According  to  the  ‘Carta  Social’  (GEP,  2017)  in 
2018,  in  39%  of  the  mainland  municipalities  the 
coverage  rate  (33)  of  kindergartens  was  below  the 
three  densely 
(49.1%). 
national  average 
(34), 
populated 
of 
areas 
kindergarten places was below 50%. In 2019, pre-

availability 

the 

In 

(32)  OECD 2019 Education at Glance 
(33)  The  coverage  rate  means  the  proportion  of  pre-primary 
school places in relation to the population of children aged 
below three 

(34)  Namely,  the  metropolitan  areas  of  Lisbon  and  Porto  and 
the  district  of  Setúbal  are  the  territories  with  the  least 
coverage compared to the resident population. 

47 

                                                           
                                                           
4.3. Labour market, education and social policies* 

Portugal’s projected demographic changes (36) are 
expected  to  influence  the  size  of  the  country’s 
labour  force  and  will  probably  also  affect  its 
level  of  education  (European 
distribution  by 
Commission, 2019h; Box 4.3.2). 

issued 

Council 

Education 

Developing  a  coherent  strategy 
for  adult 
learning remains a major challenge. In 2019, the 
National 
a 
recommendation  for  a  public  policy  on  adult 
education  and  training  as  a  complement  to  the 
Programa  Qualifica.  However,  ‘adult  educator’ 
still  needs  to  become  a  recognised,  attractive  and 
long-term  career  option,  supported  by  specialised 
courses and specific academic degrees. A national 
adult 
in  2019, 
following  the  recommendations  of  the  national 
skills  strategy,  backed  by 
the  Commission's 
Structural  Reform  Support  Programme  and  the 
European Association  for the Education of Adults 
(EAEA).  The  plan  defines  a  set  of  measures  to 
promote  literacy,  numeracy  and  digital  skills.  Its 
implementation timeline has not yet been finalised. 
Adopting  measures  to  reinforce  adult  education 
would contribute to advancing towards SDG 4. 

literacy  plan  was  developed 

involved  up 

The Qualifica programme numbers continue to 
increase,  but  follow-up  data  remain  limited. 
to 
Over  444.000  adults  were 
December  2019  (far  from  the  2020  target  of 
600.000).  The  referral  rate  is  now  close  to  84% 
and  among  these  over  60%  went  to  VET  offers. 
Around  51,600  people  have  so  far  improved  the 
level  of  their  educational  attainment  through 
Qualifica.  However,  there  are  no  detailed  follow-
up  data  on  the  type  of  training  offered  or  on 
subsequent  developments  in  employment.  This 
type  of  information  is  crucial  to  assess  how 
effective  the  programme  is  in  tackling  skills 
mismatches.  Some  improvements  to  the  Qualifica 
programme  were  made 
including 
increasing  the  network’s  response  capability,  a 
new 
public 
administration,  and  a  Qualifica  for  small  and 
medium  firms,  designed  to  raise  the  level  of 
qualification  of  business  owners  with  more 
autonomy given to training providers to adapt VET 
programmes to local needs.  

programme 

in  2019 

Qualifica 

for 

(36)  The 2019 Ageing Europe report projects that almost half of 
the Portuguese population (47.1%) will be aged 55 years or 
more in 2050. 

Portugal in several education indicators. Access to 
early childhood education is much lower in Azores 
than  on  the  mainland.  The  percentage  of  students 
with  some  delay  in  their  educational  path  and  the 
rates  of  early  leavers  from  education  and  training 
are higher in the islands than on the mainland. The 
same pattern holds for results in the national exams 
in  basic  education.  Madeira’s  secondary  school 
enrolment  and  national  exam  results  are  fairly 
similar to those of mainland Portugal, but those of 
the Azores are worse.  

Portugal  continues  to  improve  its  mechanisms 
for  quality  assurance  in  vocational  education 
and  training  (VET)  and  its  analysis  of  skills 
needs.  VET  providers  have  been  aligning  their 
quality  assurance  approaches  to  the  European 
quality  assurance  in  vocational  education  and 
training (EQAVET) framework and are awarded a 
quality  label  based  on  EQAVET  quality  criteria 
and  indicative  descriptors.  However,  EQAVET 
indicators  are  not  systematically  used  to  monitor 
progress in the VET system.  Further development 
at regional level of the  system  for assessing skills 
needs (Sistema de Antecipação de Necessidades de 
Qualificações,  or  SANQ),  is  important  to  bring 
VET  and  employers  closer  together.  By  adopting 
three  pedagogical 
training  standards,  Portugal 
intends  to  improve  the  quality  of  continuing 
professional  development  for  VET  teachers  and 
trainers.  The  Portuguese  authorities  have  engaged 
in  discussions  with  social  partners  with  a  view  to 
tackling  several  problems:  the  structural  lack  of 
qualifications  (digital  skills  included),  the  need  to 
improve  qualifications  for  specific  sectors  of  the 
economy  and  the  further  adjustment  of  available 
skills  and  labour  market  demand.  Nevertheless,  a 
comprehensive  monitoring  framework  for  VET 
and adult learning is still lacking. 

The  Portuguese  population  has  a  high  share  of 
individuals  with  low  educational  attainment. 
Despite  a  decrease  from  2017  to  2018  (52%  to 
50%),  half  of  the  population  (aged  25-64)  has  no 
more  than  lower  secondary  education,  far  above 
the EU average (22%). The adult participation rate 
in education and training rose from 9.8% to 10.3% 
in  2018  but  still  lags  behind  the  EU  average 
(11.1%).  This  share  decreases  dramatically  when 
looking  at  the  participation  of  people  with  a  low 
level  of  educational  qualification  (4.7%)  although 
it  is  slightly  higher  than  the  EU  average  (4.3%). 

48 

                                                           
4.3. Labour market, education and social policies* 

The  digital  skills  deficit  remains  a  major 
obstacle  for  Portugal.  In  2019,  48%  of  the 
Portuguese  population  lacked  basic  digital  skills, 
including  about  26%  with  no  digital  skills  at  all. 
This  is  mainly  because  many  people  have  never 
used  internet,  more  than  twice  the  EU  average 
(22%  and  9.5%  respectively).  Access  to  internet 
varies  greatly  depending  on  regions  in  Portugal. 
While  in  the  Lisbon  metropolitan  area  88%  of 
households  have  access  to  the  internet,  in  other 
parts of Portugal such as in Alentejo (71%) and in 
Algarve  (77%)  it  is  much  lower.  The  share  of 
technology 
information 
graduates  in  the  total  graduate  pool  remains 
significantly lower than the EU average (1.9% and 
3.6%, respectively).  

communication 

and 

(Movement 

Several  initiatives  for  improving  digital  skills 
and  competences  have  continued  over  the  past 
year. Most of these were implemented through the 
country's  national  digital  competences  initiative 
INCoDe.2030.  The  joint  initiative  with  .PT  and 
MUDA 
for  Universal  Digital 
Activity),  #EUSOUDIGITAL  promoted  digital 
national 
inclusion 
awareness 
roadshows.  In  2019,  Portugal  launched  the  digital 
competence 
new 
instrument  to  allow  the  Portuguese  population  to 
their 
their  digital  competences  and 
assess 
development 
digital 
qualification,  Portugal  successfully  implemented 
information 
technology 
training programmes for unemployed graduates. 

communication 

needs.  To 

framework, 

reference 

improve 

through 

and 

and 

a 

49 

4.4. COMPETITIVENESS, REFORMS AND INVESTMENT* 

professional  activities 
(Bauer  et  al.,  2020). 
According  to  the  National  Statistical  Institute, 
between 2015 and 2017 the value added generated 
by  high  growth  enterprises  increased  by  24.9%, 
more  than  double  the  rate  for  other  firms,  which 
reflects the entrance (and dynamism) of new firms 
and the increase of the export based share.  

Investment  is  increasing  from  a  low  base,  with 
net  private  investment  turning  positive,  but 
with public investment remaining subdued. The 
ratio  of  investment  (37)  over  GDP  was  17.6%  in 
2018  (16.8%  in  2017),  the  highest  since  2012. 
Despite this increase, the ratio remains one of  the 
lowest  in  the  EU.  In  2018  net  private  investment 
turned  positive,  while 
the  share  of  public 
investment in total investment reached 11%, one of 
the  lowest  in  the  historical  series.  In  this  way, 
public 
remains  well  below  EU 
standards  and  government  plans  (see  Section 
4.1.3.). In addition, net public investment remained 
negative, contributing to the gradual erosion of the 
public  capital  stock.  Targeted  public  investment 
could  fuel  productivity  growth  through  improved 
human  capital  and  technological  innovation  and 
generate  a  crowding-in  effect  by  providing 
relevant 
for  additional  private 
investment.  

infrastructure 

investment 

(37)  Eurostat  data.  Investment  defined  as  gross  fixed  capital 

formation (total fixed assets) as % of GDP. 

4.4.1.  PRODUCTIVITY GROWTH AND 

INVESTMENT* 

Productivity and Investment  

decreased 

growth 
increasing  by  1.1% 

Productivity  growth  remains  sluggish,  limiting 
the economy’s potential growth and the process 
of  convergence  with  the  euro  area.  In  2018, 
in 
labour 
productivity 
manufacturing,  while 
in 
services,  in  this  way  interrupting  a  continuous 
productivity drop since the crisis. In contrast, total 
factor  productivity  (TFP)  has  been  growing  faster 
than the euro area average since 2012. TFP growth 
has  slowed  down  compared  with  previous  years; 
hence,  the  overall  feeble  productivity  evolution  is 
the  result  of  both  a  significant  drop  in  the  capital 
per  worker 
insufficient  TFP 
performance.  Capital  intensity  has  dropped  under 
the joint impact of a cyclical upturn in employment 
and a slow recovery in investment. 

ratio  and  an 

Graph 4.4.1:  Total factor productivity 

Source: European Commission 

Productivity  performance  differs  across  types 
of  firms  and  sectors  of  the  economy.  Between 
2012 and 2015, growth in both labour productivity 
and  TFP  was  concentrated  in  the  most  productive 
firms. Hence, the gap between the most productive 
and  the  least  productive  firms  widened.  At  the 
sectoral level,  the  highest negative  impact of firm 
size  distribution  on  productivity  is  observed  in 
trade, 
manufacturing,  wholesale 
and 
accommodation 

retail 
services, 

food 

and 

and 

50 

8090100110120130140150160170180ROLVSKIELTPLBGCZSISEMTUKEEDEHUBENLHRFIFRDKPTATESITELLUCYEA19EU28US201820002008Index,2000=100 
  
 
                                                           
4.4. Competitiveness, reforms and investment* 

Graph 4.4.3:  Labour productivity at the aggregate and sectoral levels 

(1) AGG: representative aggregate of the market economy; it includes NACE sections C, F, G, H, I, J, M and N. 
Source: Bauer et al., forthcoming. 

Graph 4.4.2:  Historical evolution of net  investment 

performed  by  the  Portuguese  Statistical  Institute 
based  on  2017  data,  the  long  duration  of  trials  in 
the  justice  system  and  licensing  are  the  major 
barriers to investment.  Additional barriers refer to 
the  low  levels  of  capital  accumulation,  the  higher 
share  of  micro-enterprises  (95.4%)  compared  to 
EU  average  of  93%,  and 
the  existence  of 
regulatory hurdles in key professional  services. In 
addition,  according  to  the  2019  EIBIS  Survey 
(European  Investment  Bank,  2019) 
the  main 
barriers  to  investment  are  uncertainty,  business 
labour  market 
regulations, 
regulations and shortages of skilled staff.  

energy 

costs, 

Source: European Commission 

Several  barriers  are  holding  back  productivity 
growth and firms’ investment.  In its first report, 
the Portuguese Productivity Board (Conselho para 
a  Produtividade,  2018)  identifies  as  main  factors 
hindering  productivity  growth  the  low  level  of 
qualification  of  the  workforce  (particularly  for 
older  workers  and  managers),  poor  innovation  in 
the  private  sector  and  poor  interaction  between 
firms and public administration.  According to the 
latest  Survey  on  Framework  Regulation  Costs 

Exports are increasing  but  there is potential to 
foster  the  internationalisation  of  small  and 
medium enterprises (SMEs). Export performance 
has been instrumental in rebalancing the economy, 
together with the increasing stock of foreign direct 
investment.  Exports  as  share  of  GDP  increased 
from  31.2%  in  2007  to  43.5%  in  2018  (euro  area 
average  48%).  Exports  have  been  underpinned  by 
both  diversification  and  quality  upgrading  in 
manufacturing.  Despite  ongoing  policy  initiatives, 
the internationalisation of SMEs remains below its 
potential (European Commission, 2019e).  

Access to finance has deteriorated slightly, and 
alternative sources of finance, while improving, 
remain of moderate relevance. Access to finance 
has deteriorated slightly compared to the previous 

51 

-4-2024681012141618197819801982198419861988199019921994199619982000200220042006200820102012201420162018Private investment - EU28Private investment - PTPublic investment - EU28Public investment - PT% ofGDP-60-50-40-30-20-1001020AGG.*CFGHIJMNSize DistributionSize Class ProductvitySectoral CompositionTOTALPercentage difference in labour productivity at the aggregate and sectoral levels relative to the EU average, contributing effects (2016)-20-10010203040AGG.*CFGHIJMNSize DistributionSize Class ProductvitySectoral CompositionTOTALPercentage change in labour productivity at the aggregate and sectoral levels, contributing effects (2012-2017)  
  
4.4. Competitiveness, reforms and investment* 

to  address  these  challenges,  which  would  lead  to 
progress on SDG 9.  

structure 

economic 

remains 
Portugal’s 
anchored  in  traditional  low-  and  medium-low- 
tech sectors, pointing to slow structural change. 
There  has  been  limited  progress  with  upgrading 
the country’s economic structure to achieve higher 
shares  of  value-added  in  high-tech  manufacturing 
and  services.  Although  exports  of  medium-  and 
high-tech  products 
they  have 
remain 
continued  to  improve  relative  to  the  EU  average, 
going from 48% in 2010 to 58% in 2018 (Godinho, 
M., Corado Simões, V. and Sanchez-Martinez, M., 
2020).  In  addition,  investment  in  machinery  and 
equipment is now rising again.  

low, 

Portugal has the potential to address the  needs 
of  the  labour  market  and  improve  research 
careers.  According 
the  2019  European 
to 
Innovation  Scoreboard,  Portugal  has  made 
progress  in  increasing  the  number  of  science  and 
engineering  graduates.  Levels  are  now  above  the 
EU  average  and  the  share  of  researchers  in  total 
employment has increased. Yet, the country ranks 
low in the EU in terms of computing graduates. To 
scientific 
improve 
employment  programme 
the  SIFIDE 
fiscal incentive and the INTERFACE scheme.  

research 

includes 

careers, 

the 

scientific 

co-publications 

There  are  new  measures  designed  to  tackle 
shortcomings  in  science-business  links.  Despite 
the  increasing  internalisation  of  its  R&D  sector, 
Portugal  ranks  low  relative  to  the  EU  in  public-
private 
(European 
Commission,  2019g).  To  improve  the  framework 
conditions  for  collaboration,  the  INTERFACE 
scheme  is  designed  to  strengthen  the  country’s 
cluster  policy  for  innovation.  Moreover,  ‘Portugal 
2020’  launches  calls  for  co-promotion  projects. 
Within Capitalizar, a more flexible regime for tax 
credits is being implemented, and SMEs now have 
an extended carry-forward period of twelve years.   

is 

to 

the 

strives 

Portugal 

integrate 

Portugal 
smart 
specialisation  and  environmental  sustainability 
agendas. 
supporting 
internationalisation 
science-business 
cooperation in the circular economy and improving 
the  implementation  of  its  national  and  regional 
strategies.  However,  as 
smart 
concerns 
the 
national  and  regional  levels,  along  with  a  lack  of 

latter,  cooperation  between 

specialisation 

and 

the 

rejected 

in  accessing 

loan  applications,  and 

year (SBA  Factsheet 2019), mainly on account of 
the  deterioration  in  the  strength  of  the  legal  right 
index,  the  total  duration  in  days  to  get  paid,  the 
the 
rate  of 
willingness of banks to provide loans. The share of 
SMEs  reporting  difficulty 
loans 
remains  relatively  large  (10%)  (SAFE  survey, 
2019).  On  the  other  hand,  the  number  of  venture 
capital  transactions  was  4.4  times  higher  in  2018 
than  in  2017,  but  venture  capital  only  represents 
about  1%  of  investment  in  Portuguese  firms.  In 
addition,  the  overall  amount  of  venture  capital 
funnelled to start-ups remains one of the lowest in 
the  EU  (Flachenecker  et.  al,  2020).  Direct  stock 
listings  of  SMEs  are  rare  as  well  as  providers 
utilising  financial  technology  (‘FinTech’)  (OECD 
Economic surveys, 2019). This is despite measures 
taken  by  Portugal  in  2018  and  the  first  quarter  of 
2019, such as the creation of a legal regime for the 
conversion of credits into equity.  

Research and innovation  

R&D  intensity  remains  below  the  EU  average, 
with  Portugal  being  a  moderate  innovator. 
R&D  intensity  increased  to  1.35%  in  2018,  still 
below  the  pre-crisis  level  of  1.58%  of  GDP. 
Business  R&D  intensity,  at  0.69%  of  GDP  is 
higher than public R&D intensity (0.64% of GDP) 
in  2018  but  remains 
low.  The  government 
announced  (Portuguese  Government  Programme 
2019-2023)  an  objective  of  R&D  investment  of 
3%  of  GDP  by  2030,  but  specific  performance 
indicators in R&D are yet to be announced.  

Subdued  investment  in  intellectual  property, 
intangible assets, including R&D and economic 
and digital competences weigh on productivity. 
Investment  in  intellectual  property  is  well  below 
the euro area average and close to pre-crisis levels. 
In  addition, 
intangible 
the  contribution  from 
is  below 
to  productivity  growth 
investment 
average  (0.13%  vs.  0.19%)  (Bauer  et  al.,  2020). 
The  same  applies  to  investment  in  training  and 
organisational capital as a share of GDP (European 
Commission,  2018b).  Moreover,  the  share  of 
investments  to  ICT  in  GDP  has  declined  since 
2000.  These  developments  undermine 
the 
productivity of firms and their capacity to reap the 
benefits from digitalisation. The Qualifica scheme 
for upskilling of the population, the INCoDe.2030 
national  strategy  to  enhance  digital  competences, 
and “Industry 4.0” are the main initiatives in place 

52 

4.4. Competitiveness, reforms and investment* 

smart  specialisation  skills  among  public  and 
private  actors,  lead  to  governance  bottlenecks.  In 
addition,  their  monitoring  is  limited  and  does  not 
innovation  outcomes.  To  circumvent 
measure 
some  of  these  challenges,  Portugal  has  started  to 
review its approach, with an emphasis on priorities 
for  research  and  innovation  investment  and  better 
coordination of national and regional strategies.   

Digitalisation of Industry  

technologies 

The  digitalisation of the Portuguese industry is 
a  challenge,  but  measures  to  help  companies 
integrate  digital 
are  being 
implemented.  Portugal  is  above  EU  average  on 
the integration of digital technology into business, 
but SMEs are lagging behind larger firms (24% of 
SMEs  -  excluding  microenterprises  -  have  high 
levels  of  digital  intensity  vis-à-vis  60%  of  larger 
firms).  In  2019,  the  share  of  companies  selling 
online decreased to 16.5% (EU average 18%) and 
the  share  of  e-commerce  in  corporate  turnover 
increased  to  15%  (EU  average  11%).  The  first 
phase of Industria 4.0 was completed with 95% of 
measures  completed  or  under  implementation.  In 
2019,  the  second  phase  started  with  a  funding  of 
€600  million  and  three  main  objectives:  reskill, 
upskill  and  train  over  200,000  workers,  promote 
digital transition in over 20,000 firms and scale up 
over 350 projects.  

Portugal  is  committed  to  the  development  of 
innovative digital technologies. With the strategy 
on  Artificial  Intelligence  Portugal  2030, 
the 
country  is  aiming  to  be  at  the  forefront  of 
education on artificial intelligence. In addition, the 
strategy  on  Advanced  Computing  Portugal  2030 
aims  at  promoting  and  expanding  advanced 
cyberinfrastructure  until  2030.  In  2019,  Portugal 
inaugurated  its  first  supercomputer  (start  of  the 
participation  in  the  European  High-Performance 
Computing initiative) and a second is expected by 
the end of 2020.  

53 

4.4. Competitiveness, reforms and investment* 

(Continued on the next page) 

54 

Box 4.4.1: Investment challenges and reforms in PortugalSection 1. Macroeconomic perspective Portugal’s gross fixed capital formation accelerated substantially at the beginning of 2019 driven mainly by infrastructure construction projects. On a full-year basis, gross fixed capital formation is projected to increase by 6.5% in real terms, picking up from 5.8% in 2018. Investment growth is forecast to slow down somewhat in 2020-2021 but to remain strong, supported by the cycle of EU funds. The share of investment in GDP has increased from a historical low of 14.8% in 2013 to 17.6% of GDP in 2018 and is set to rise further to 19.6% by 2021. Portugal’s public investment has nonetheless been subdued for a prolonged period, after sustaining very high levels during the first decade of the 2000s. While it is set to continue on the gradually increasing path initiated in 2017, after its lowest level in 2016, the projected share of public investment in GDP, at 2.3% of GDP by 2021, would remain significantly below the average of around 3% for the euro area and the EU as a whole. Section 2. Assessment of barriers to investment and ongoing reforms  Various factors hinder investment in Portugal. The low level of qualification of the workforce, especially in digital skills, makes it more difficult to boost investment in knowledge-intensive activities (Section 4.3). Investment gaps in infrastructure, particularly as regards transport and energy, make Portuguese firms less competitive (see Section 4.4). Other challenges to competitiveness include regulatory barriers in business services (see Section 4.4.2), and aspects of the business environment, in particular sector-specific barriers in licensing and inefficiencies in the justice system (see Section 4.4.4). The EU supports investment in Portugal also via the European Fund for Strategic Investments (EFSI). By December 2019 total financing under the EFSI amounted to €2.7 billion, intended to trigger €10 billion in additional investments. The current experience with the EU financial instruments and the EFSI budgetary guarantee demonstrated a need for simplification, streamlining and better coordination of the EU’s investment support instruments during the next 2021-27 programming period. By the end of 2020, EFSI and other EU financial instruments will come under the roof of the new InvestEU programme that promotes a more coherent approach to financing EU policy objectives and increases the choice of policy implementation options and implementing partners to tackle country specific market failures and investment gaps. In addition, under InvestEU, Member States can set-up a national compartment by allocating up to 5% of their structural funds to underpin additional guarantee instruments supporting the financing of investments with a higher level of local specificities. InvestEU will be policy-driven and focus on four main areas: Sustainable Infrastructure, Research, Innovation, and Digitisation, Small Businesses, and Social Investment and Skills. Regulatory/ administrative burdenCSRTaxationPublic administrationAccess to financePublic procurement /PPPsCooperation btw academia, research and businessJudicial systemCSRFinancing of R&D&ICSRInsolvency frameworkBusiness services / Regulated professionsCSRCompetition and regulatory frameworkRetailEPL & framework for labour contracts CSRConstructionWages & wage settingDigital Economy / TelecomEducation, skills, lifelong learningCSREnergyCSRTransportCSRNo barrier to investment identifiedCSRInvestment barriers that are also subject to a CSRSome progressNo progressSubstantial progressLimited progressFully addressedFinancial Sector / TaxationR&D&IPublic administration/ Business environmentLabour market/ EducationSector specific regulation 
 
   
 
 
4.4. Competitiveness, reforms and investment* 

in 

Portuguese 

European harmonised standards and to make them 
available 
language.  These 
limitations  in  the  IPQ’s  work  create  obstacles  to 
the  accessibility  and  use  of  European  harmonised 
standards  by  companies,  generating  additional 
costs (e.g. for translation, for consultancy services 
and  for  external  conformity  assessment  services) 
and  making  it  more  difficult  for  companies  to 
anticipate and prepare for future changes that have 
an impact on their production systems.  

Services sector  

to 

to 

to 

simplify 

continue 

rules  and 

restrict 
Regulatory  barriers 
competition 
for  professional  and  business 
services.  The  framework  law  of  2013,  which 
formed part of the financial assistance programme, 
intended 
regulations 
applicable  to  highly  regulated  professions.  This 
law  was  not  fully  implemented,  and  various 
legal  services  remain. 
regulatory  barriers 
Restrictions to multidisciplinary practices (lawyers 
and  solicitadores), 
legal  form  (solicitadores), 
shareholding  (51%  for  lawyers  and  100%  for 
solicitadores),  management  (solicitadores)  and 
advertising  (lawyers  and  solicitadores)  could  be 
detrimental to the legal services market. They may 
limit firms’ access to capital, reduce economies of 
scale  and 
restrict  competition. 
Redesigning  these  requirements  with  a  view  to 
ensuring the required quality  of the  service,  while 
stimulating  innovation  and  competition,  would 
therefore  be  economically  beneficial.  Extensive 
reserves  of  activities  for  other  highly  regulated 
professions,  notably  architects  and  engineers  also 
remain  unreformed,  keeping  out  competitors 

scope,  and 

4.4.2.  MARKETS’ INTEGRATION* 

Single market of goods  

Directive 

(Directive 

single  market. 

The  low  level  of  notifications  under  the  Single 
Market  Transparency  Directive  could  have  a 
negative  impact  on  the  overall  functioning  of 
  The  Single  Market 
the 
Transparency 
(EU) 
2015/1535)  aims  to  prevent  barriers  to  the  free 
movement  of  goods  and 
information  society 
services  via  a  notification  mechanism  of  national 
draft  technical  regulations.  Compared  to  most 
Member  States,  Portugal 
few 
notifications under this Directive (two in 2018 and 
four  in  2019).  Adoption  of  technical  regulations 
without  notification  could  harm  Portugal’s 
integration  in  the  single  market  and  its  related 
economic  benefits.    Some  steps  were  taken  to 
among 
improve 
national  authorities  but  so  far  without  concrete 
follow up. 

administrative 

cooperation 

very 

sent 

limited 

The 
the  national 
resources  of 
standardisation  system  are  negatively  affecting 
the  functioning  of  the  single  market,  and  the 
competitiveness  of  SMEs  in  manufacturing. 
Portugal’s,  the  national  standardisation  body,  the 
Instituto Português da Qualidade (IPQ), is limited 
in its work by serious resource constraints and thus 
is  not  able  to  fully  comply  with  its  role  of 
providing information on and facilitation of access 
to  standards  for  SMEs.  In  addition,  it  is  difficult 
for  IPQ  to promote  and  facilitate  the  involvement 
the  development  of 
in 
of  Portuguese  firms 

55 

Main barriers to investment and priority actions underway The low level of qualification of the workforce inhibits the prospects of improving productivity. Portugal is implementing several policies to improve skills, notably through the Qualifica programme. The country has also recently developed a new national adult literacy plan. In the area of digital skills, policy initiatives include INCoDE 2030, the digital competence reference framework, and Capacitar i4.0.   Improving the efficiency of the justice system, particularly as regards insolvency proceedings, has the potential to improve the efficiency of credit allocation and facilitate a better reallocation of productive resources. Portugal is implementing reforms to the legal and institutional framework for insolvency and debt enforcement, such as an extrajudicial regime for business recovery, and a legal regime for debt-to-equity swaps. Other measures designed to improve judicial efficiency include a new law under which legal chambers specialising in administrative and tax matters can be set up, and various e-justice initiatives, notably the Justiça + Próxima programme and the amendment of the Code of Civil Procedure to enable the ‘digital by default’ approach in civil proceedings.  
4.4. Competitiveness, reforms and investment* 

based’  building  standards  has  been  planned  for 
years  but  has  yet 
thus 
to  be 
restricting  cross-border  movement  of  construction 
goods and services. 

implemented, 

and 

administrative 

The retail sector is performing well overall, but 
burdensome 
taxation 
elements  remain.  Increasing  consumer  spending 
brought  along  by  economic  growth  has  been 
fuelling retail sales, and retailers continue to invest 
in  this  growing  market,  especially  in  smaller 
format  convenience  stores  and  in  online  retail 
services.  Regulatory  constraints  on  retail  business 
have decreased in Portugal in recent  years, owing 
to  reforms  such  as  the  liberalisation  of  shop 
opening  hours  or  the  relaxation  of  end-of-season 
sales  rules.  Nevertheless,  some  aspects  of  the 
regulatory  and  taxation  frameworks  could  still  be 
burdensome  for  companies.  In  particular,  as 
reflected  in  the  Retail  Restrictiveness  Indicator 
(40), retail-specific taxes and para-fiscal fees, based 
on  the  outlet  size,  for  the  establishment  or 
operation (41) of a shop are applied in Portugal. As 
regards  the  establishment  of  retail  outlets,  there 
simplification  of 
seems 
authorisation  procedures,  i.e.  reduction  of  the 
number  of  permits  required  and  the  number  of 
entities involved in the establishment process. 

to  be 

scope 

for 

Transport services   

interoperability 

Railway 
is  still  a  major 
bottleneck for Portugal. Railways are still widely 
underused in the connections to Spain (both East-
West  and  North-South  corridors).  Nevertheless, 
actions  regarding  railways  modernization  in  cross 
border  regions  are  starting 
to  be  articulated 
between  the  two  countries,  which  have  adopted  a 
common  strategy  to  address  the  gauge  issue. 
However,  a  comprehensive  and  coordinated 
medium  and  long-term  strategic  investment  and 
modernization  plan  for  the  Iberian  Peninsula  and 
further  connection  to  the  French  rail  network  is 
still  missing.  Such  a  plan  could  boost 
the 
international  rail  performance  thereby  tackling 
Portugal’s  peripheral  situation  and  exploiting  the 
potential  of  Portuguese  ports,  so  far  harmed  by  a 
‘road-only’ model. 

(40)  See the Commission’s Communication “A European retail 
sector  fit  for the 21st century”  COM(2018)  219  final,  and 
its Annex and accompanying Staff Working Document 
(41)  "Taxa  de  Segurança  Alimentar  Mais  (TSAM)".established 
through Decree-Law No. 119/2012, on 15 June 2012 

wishing  to  provide  ancillary  services.  A  ban  on 
groups  of  companies  in  the  field  of  regulated 
professions  (38)  prevents  such  companies  from 
growing  and  foreign  groups  of  such  companies 
operating in Portugal. 

As  underpinned  by  several  indicators,  the 
restrictiveness  of  regulation  is  higher  than  EU 
average  for  several  professions.  This  is  the  case 
for  accountants and civil engineers and it remains 
high  for  others,  such  as  lawyers,  according  to  the 
Commission’s  Reform  Recommendations  of  2016 
(COM(2016)  820  final)  and  the  2018  OECD 
Product  Market  Regulation 
indicators.  The 
Portuguese authorities have so far not followed up 
on  the  2018  OECD  and  Portuguese  Competition 
Authority study (OECD 2018) on highly regulated 
professions, which suggested reforms in the scope 
of  reserved  activities,  and  in  restrictions  on  legal 
form,  shareholding,  management,  advertising,  and 
multidisciplinary  restrictions  and  incompatibility 
rules (39). The Government Programme 2019-2023 
states that these recommendations will be followed 
but the exact scope of the action to be taken and its 
timeframe are yet to be defined.  

and 

licensing, 

segments  of 

Barriers to competition in construction services 
remain,  leaving  scope  for  reducing  regulatory 
burden. Market access for construction services in 
general  was  significantly  simplified  in  2015. 
However, administrative charges and fees imposed 
for 
regulatory 
registrations 
supervision  remain  high.  Construction  services  in 
specific 
(notably 
water/sewage,  alarm  installations,  electrical,  gas 
and  telecom  installations)  remain  burdened  by 
complex  authorisation  schemes  (Ecorys,  2018). 
Building  permits  could  be  simplified  through  a 
more homogeneous application across the country 
of broad planning and urban law criteria, as well as 
through  an  even  more  ambitious  recourse  to 
‘responsible  declarations’  for  installation  services, 
as  was  done  recently  for  electrical  and  gas 
installations.  A  general adoption of  ‘performance-

the  market 

(38)  Article  8(4)  of  Law  53/2015  (Framework  Law  for  highly 
regulated  professions)  prohibited  a  professional  firm 
(parent company) from owning shares (as a professional) in 
more 
thus 
than  one  professional  firm  (subsidiary), 
restricting  severely  secondary  establishment  by  banning 
corporate groups with no apparent justification 

(39)  The  study  covered  13  self-regulated  professions:  lawyers, 
solicitors, bailiffs, notaries, engineers, technical engineers, 
architects, auditors, certified accountants, customs brokers, 
economists, pharmacists and nutritionists. 

56 

                                                           
                                                           
4.4. Competitiveness, reforms and investment* 

Investments 

The  development  of 
the  new  container 
terminals  in  Sines  and  Barreiro  remains  a 
priority. 
the  new  container 
in 
terminal  in  Sines  (Terminal  Vasco  da  Gama)  and 
the  expansion  of  the  existing  terminal  XXI  will 
increase  the  economic  potential  of  Sines.  The 
timely  public  tendering  of  the  new  container 
the 
improve 
in  Barreiro  will 
terminal 
competitiveness of the Lisbon port system.  

Digital 
infrastructure 

connectivity 

and 

broadband 

Portugal  performs  well  in  the  deployment  of 
fast  and  ultrafast  broadband  connectivity.  An 
additional effort is still required to ensure that fast 
broadband  (by  2020)  and  ultrafast  broadband  (by 
2025)  reaches  all  households  (42),  including  those 
in  rural  areas.  Mobile  broadband  prices  remain  a 
challenge  (43).  The  context  is  a  market  dominated 
by  convergent  bundles,  including  mobile  services 
and  pay  TV  services  and  characterised  by 
increasing internet access speeds (supported by the 
deployment  of  the  Fiber  to  the  Premises  (FTTP) 
networks)  where  price  increases  in  the  flagship-
bundled  products  of 
the  main  operators  are 
generally  linked  to  different  improvements.  The 
rollout of 5G will depend on the implementation of 
the  5G  strategy  and  on  the  prompt  completion  of 
the  700  MHz  award  procedures.  While  Portugal 
plans  to  auction  them  and  the  3.6  GHz  in  April 
2020  and  Portuguese 
independent  regulatory 
authority for communications (ANACOM) already 
approved 
the  digital 
the  migration  plan  of 
terrestrial television (DTT) for the 700 MHz band 
(44), an operator holds rights for use for about 100 
MHz  in  the  3.4  –  3.6  GH  band  until  2025.  This 
may  pose  some  difficulties  in  the  reorganisation 
and availability of the band within the deadline of 
December 2020. 

The  submarine  cables  connecting  mainland 
Portugal, the Azores and Madeira are expected 
to reach the end of their life in 2024 and 2025. 
At  the  end  of  2019,  ANACOM  delivered  to  the 
Portuguese  Government  an  analysis  of  the  most 
suitable  technical  and  financial  configuration  for 
the  project.  The  replacement  of  these  submarine 

(42)  Fast  broadband:  of  at  least  30  Mbps;  ultrafast  broadband: 

of at least 100 Mbps 

(43)  See  the  Commission’s  study  on  fixed  broadband prices  in 

Europe (2018) 

(44)  ANACOM decision of 23 December and 4 October 2019 

Railway  investments  face  delays.  The  main 
projects  under  the  2020  Ferrovia  programme  that 
are  co-funded  by  the  Connecting  Europe  Facility 
face  delays  with  origin,  in  most  cases,  in  the 
design and construction industries lack of response 
in  the  post  crisis  period,  which  in  some  cases 
cannot  be  entirely  made  up  for.  The  investment 
situation  has  improved  when  compared  to  the 
2007-2013  period,  when  most  grant  agreements 
had  to  be  cancelled,  but  it  is  still  sub-optimal. 
Railway investments are key for Portugal to attain 
its decarbonisation targets and ensure neutrality of 
its  emissions  by  the  end  of  2050  (2050  Carbon 
Neutrality Roadmap).    

and 

Regulatory 
barriers 
long-lasting 
in  the 
concessions  hold  back  competition 
management  of  ports  and  in  the  provision  of 
ports’  services.  According  to  a  study  conducted 
by  the  OECD  and  the  Portuguese  competition 
authority  in  2018  (OECD,  2018a),  the  maritime 
transport sector in Portugal suffers from excessive 
regulations  with  barriers  to  entry,  administrative 
burdens  and  legal  uncertainty  stemming  from 
obsolete  legislation.  The  port  and  maritime  sector 
are  particularly 
the  Portuguese 
important  for 
economy,  hence  relaxing  such  barriers  could 
stimulate  investment  and  reduce  the  price  of 
services  as  result  of  increased  competition.  Key 
recommendations of the OECD and the Portuguese 
competition  authority  stress  the  need  to  broaden 
the  participation  of  private  services  providers  in 
the  port  sector,  for  services  such  as  towing, 
pilotage  and  ancillary  port  services,  along  with 
redesigning  the  concessions  for  cargo  handling 
operations,  in particular by making the duration of 
the  concessions  proportional 
level  of 
investment incurred by the concession-holder. 

the 

to 

the  Alcântara 

The  renegotiation  of  port  concessions 
is 
progressing  slowly  and  there  are  investment 
gaps in some key Portuguese ports. The Leixões 
port  concession  has  been  renegotiated  and  the 
renegotiation  of 
and  Sines 
concessions 
is  ongoing.  However,  most  port 
concessions  in  Portugal  will  come  to  an  end  by 
2025  and  have  not  yet  been  renegotiated  or  re-
tendered. The re-tendering of these concessions by 
means  of  public 
tenders  could  help  make 
Portuguese  ports  more  productive.  Ports  are  also 
facing  investment  gaps,  and  development  of  new 
container  terminals  could  increase  their  economic 
potential. 

57 

                                                           
4.4. Competitiveness, reforms and investment* 

in 

the  capital 

(415,000)  or 

Centro 
region 
(348,000). Considering national poverty lines, only 
the  capital  region,  with  a  rate  of  12.3%  had  a 
significantly  lower  rate  than  the  national  value 
(17.3%). Nevertheless, if regional poverty lines are 
considered, the risk of poverty of the capital region 
increases  to  18.9%,  the  data  confirming  that 
pockets  of  poverty  and  social  exclusion  persist  in 
particular in the metropolitan areas. 

the 

changes 

demographic 

regions  with 

the  exception  of 

Long-term 
are 
aggravating  territorial  asymmetries.  Between 
2011 and 2018 the overall population decreased in 
all 
the 
metropolitan  area  of  Lisbon.  (Graph  4.4.4).  This 
goes  hand  in  hand  with  the  rural-urban  shift 
occurring across Portugal, resulting in rising urban 
in  coastal  areas  and  expanding 
populations 
conurbations.  The  number  of 
is 
decreasing,  especially  in  rural  and  smaller  urban 
areas  of  the  Norte,  Centro  and  Alentejo  regions, 
making  them  less  attractive  for  business  and 
increasing  the  cost  of  maintaining  the  level  of 
public services. In the inland territories, the old age 
dependency ratio reached the  highest values (INE, 
2018),  and  this  asymmetry  is  particularly  evident 
in Alto Tamega, Terras de Trás-os-Montes (Norte) 
and the Beira Baixa and Beiras e Serra  da  Estrela 
(Centro)  subregions.  In  contrast,  the  outermost 
regions have values below the national average 

inhabitants 

a 

cables 

represents 

interconnection 
critical 
investment to ensure the economic development of 
these outermost regions and to guarantee that their 
adequate 
citizens 
communications  and  access  to  public  and  private 
digital services. 

benefit 

from 

can 

4.4.3.  REGIONAL DISPARITIES 

the 

coastal/inland 

the  population 

Portugal continues to be  marked by significant 
territorial  disparities.  Territorial  differences  are 
mainly  driven  by  geography  and  the  historical 
distribution of the population, and are particularly 
dichotomy. 
reflected 
in 
Approximately  60%  of 
is 
concentrated in the coastal areas of the country (0-
25km, rising to almost 70% if we consider the 0-50 
km  range).  44%  of  the  population  lives  in  the 
metropolitan  areas  of  Lisbon  and  Porto,  where 
more  than  half  of  country’s  added  value  is 
produced  (45).  The  inland  regions  of  mainland 
Portugal  are  overall  characterised  by  a  higher 
proportion  of  the  primary  sector  in  the  economy 
(e.g.  in  regions  Douro  and  Terra  de  Tras-os 
Montes  employment  in  agriculture  accounts  for 
45%  of    total  employment,  vs.  9%  at  national 
level). Furthermore, fewer and smaller urban areas 
and lower population density  (very low (46) in the 
mountainous border regions of Norte and Alentejo) 
characterise these territories.  

The  risk  of  poverty  remains  higher  in  rural 
areas and particularly in the outermost regions. 
The  proportion  of  people  at  risk  of  poverty  or 
social  exclusion  in  Portugal  is  significantly  larger 
in rural areas than in cities  with a  larger  gap than 
the EU average and thus in the inland areas, where 
up to 50% of the population lives in predominantly 
rural areas.Recent data (INE, May 2019, Inquérito 
às  condições  de  Vida  e  Rendimento)  show  that 
residents  of  the  autonomous  regions  were  more 
exposed  to  the  risk  of  poverty  (31.6%  in  the 
Azores  and  27.5%  in  Madeira,  using  a  national 
the  benchmark) (47).  In 
poverty 
absolute  terms,  most  people  at  risk  of  poverty  in 
2017  lived  in  the  region  of  Norte  (664,000),or 

threshold  as 

(45)https://www.ine.pt/xportal/xmain?xpid=INE&xpgid=ine_in
dicadores&contecto=pi&indOcorrCod=0008485&selTab=t
ab0&xlang=pt 

(46)  Pop. Density lower than 8  inhab./km² 
(47)  Approximately €3.5 billion addressed to low density areas, 

(fact finding mission). 

58 

                                                           
4.4. Competitiveness, reforms and investment* 

Graph 4.4.4:  Total population change in NUTS3 regions, 

4.4.4.  INSTITUTIONAL QUALITY* 

2011-2018 (% change) 

Administrative 
environment  

simplification  and  business 

to 

of 

tool 

new  measures 

Administrative simplification is ongoing, mainly 
SIMPLEX+ 
through 
is 
programme.  The  SIMPLEX+  programme 
Portugal’s  main 
reduce 
policy 
administrative  burden;  it  has  helped  to  implement 
multiple  e-government  initiatives  across  areas  of 
the  administration,  including  justice  and  home 
affairs.  The  once-only  principle  is  also  being 
in  scope  and  practical 
significantly  extended 
impact  and 
inspection 
the  harmonisation  of 
procedures  has  produced  relevant  administrative 
simplification.  The  external  evaluation  of  40 
measures  of  the  2017/8  SIMPLEX+  reported 
savings  of  about  €174  million    in  dealing  with 
information  obligations  The  119  measures  of 
SIMPLEX  2019  are  under  way  and  due  to  be 
completed  in  2020.  A  new  financing  portal  has 
been 
the 
possibilities of public financial support to firms in 
an easy and tailored way. Other measures include a 
number  of  platforms  merging  data  collection 
processes to ensure that data is provided only once 
(for  example,  for  data  on  work  contracts  and 
remunerations),  innovative  means  of  payment  for 
public  services,  a  cybersecurity  self-assessment 
tool,  and measures to simplify certification and e-
certification  of  SMEs.  Yet,  the  time  to  deal  with 
taxes  remains  higher  than  in  most  European 
countries. Portugal is also introducing a new early 
warning  system 
financial 
difficulty 
to  prevent  avoidable  bankruptcies, 
expected to be operational in early 2020.   

implemented,  bringing 

for  companies 

together  all 

in 

However,  neither  SIMPLEX+  measures,  nor 
other programmes, have advanced substantially 
in  addressing  licensing  and  excessive  sector-
specific  burden.  Multiple  administrative  burdens 
arise  from  excessive  recourse  to  authorisation 
schemes,  often  with  long  decision  deadlines  and 
sometimes  no 
few 
exceptions of reduced impact (such as the recently 
reformed 
scheme  of  pressure 
equipment). Document-producing requirements are 
becoming  easier  to  comply  with  as  the  once-only 
principle  develops.  However,  significant  gains  in 
administrative  simplification  could  be  achieved  at 
a sector-specific level if the prior control paradigm 
were  replaced  by  a  ‘responsible  declaration’ 

tacit  approval,  beyond 

certification 

Source: Eurostat 

Against  this  demographic  background,  access 
to  quality  public  services 
is  even  more 
important  to  guarantee  citizens’  fundamental 
needs  and  maintain  a  high-  quality  of  life. 
Providing  small  and  medium-sized  urban  centres 
with collective facilities and services, and a quality 
rural 
transport  network 
populations access to these  services  will reinforce 
the  strategic  dimension  of 
in 
particular in rural areas.  

that  will  guarantee 

these  centres, 

EU cohesion policy plays a fundamental role in 
supporting public investment and strengthening 
economic,  territorial  and  social  cohesion  in  the 
Portuguese  regions  and  this  is  even  of  greater 
relevance in the inland areas of the country. To 
this extent, a list of 165 municipalities and specific 
areas  of  21  additional  municipalities  has  been  set 
on  the  basis  of  a  multi-criteria  approach,  taking 
trends, 
into 
accessibility  criteria  and  social  and  territorial 
characteristics  (CIC,  2015).  To  address 
their 
specific  needs,  specific  calls  for  projects,  positive 
discrimination  in  the  projects’  selection  criteria 
and  augmented  EU  financial  support  have  been 
agreed  to  focus  EU  support  in  these  areas  of  the 
country.  

consideration 

demographic 

59 

 
4.4. Competitiveness, reforms and investment* 

of Portuguese SMEs experienced late payments in 
commercial  transactions  in  2019.  In  terms  of 
impacts, 21%  SMEs  delayed  payments  to  their 
own  suppliers,  15%  cut  on  new  hiring  and 
investments, 
and 
operation,  and  10%  delayed  loan  repayments 
and needed additional financing.    

11% reduced 

production 

Digital public services/e-government 

of 

and 

information 

Portugal 
is  adopting  relevant  measures  to 
continue  to  modernise  public  services  with  the 
help  of  digital  technologies  and  is  one  of  the 
leaders  in  the  EU  in  this  area.  Estratégia  TIC 
2020, the strategy for digital transformation of the 
Public Administration, is promoting effectively the 
communication 
use 
technologies  for  administrative  simplification  and 
public  service  improvement.  The  share  of  e-
government  users,  individuals  aged  16-74  having 
sent  filled  forms  to  public  authorities  over  the 
internet  during  the  last  12  months,  has  increased 
significantly  over  the  last  years  to  70%  in  2019. 
The  latest  initiatives  in  this  area  include  the 
signature of the Digital 9 (D9) charter,; the launch 
of the ePortugal portal as the central repository for 
all  public  services  dedicated  to  citizens  and 
companies;  and  the  launch  of  the  mobile  medical 
electronic  prescription,  allowing  the  creation  of 
medical  prescriptions  using  a  smartphone  (48). 
Despite  this  progress,  the  successful  uptake  of 
digital  public  services  is  limited  by  the  use  of 
internet services. In 2019, the share of people who 
have  never  used  the  internet  was  22%,  more  than 
twice the EU average of 9.5% (see section 4.3). 

Public procurement  

Competition in public procurement procedures 
has  increased.  Since  the  entry  into  force  of  the 
new  public  procurement  code  in  January  2018 
there has been a reduction of direct awards. From 
January  2019  to  September  2019,  the  number  of 
direct  award  procedures  fell  by  around  12%  in 
comparison with the same period in 2018 while the 
same  holds  true  for  the  value  of  the  contracts 
which fell by around 20% (data from the dedicated 
online  procurement  platform  BASE).  The 
participation  of  SMEs  in  the  public  procurement 
procedures increased by nearly 3.5% compared to 

(48)  See the report ‘Digital Government Factsheets 2019’ by the 

National Interoperability Framework Observatory. 

approach,  followed  by  efficiently-run  inspections 
and supervision.  

the 

fields, 

currently  mainly 

Regulatory  impact  assessment  (RIA)  still  has 
further  potential 
to  reduce  administrative 
burden  and  to  optimise  policy  design.  RIA  has 
been  carried  out  in  Portugal  in  the  framework  of 
the  Custa  Quanto?  Programme.  RIA  covers 
impacts  on  businesses,  including  the  SME  test, 
and since  2018,  on  citizens.  RIA  processes  are 
coordinated  by  Technical  Unit  for  Legislative 
Impact Assessment (UTAIL), and ministries carry 
out  RIAs  for  legal  acts  or  proposals  in  their 
respective 
ex-ante 
analyses,  with  further  developments  ongoing 
regarding  ex-post  RIA,  and  also  including  EU 
legislation.  UTAIL’s  activity  report  for  2018 
confirmed  an  increased  level  of  RIA  activity 
across 
policy 
departments. Coordination 
other  RIA 
processes have been strengthened, but the focus is 
still  largely  on  costs.   Identification  of  policy 
options,  cost-benefit  analysis,  and  more  extensive 
monitoring  how  RIA  process  affected  policy 
design,  are  lacking.  Additionally,  RIA  could  be 
ensuring  more 
made  more 
stakeholders’ 
in  particular  by 
consulting SME stakeholders at both the initial and 
legislation,  and 
later  stages  of  drafting  new 
analysing how the RIA process has contributed to 
make 
business-friendly. 
Currently,  UTAIL  is  carrying  out  a  project  with 
the  OECD  supported  by  the  Structural  Reform 
Support  Programme 
improve  RIA,  which 
to 
includes work on a revised SME test which is due 
to  be  completed  in  2020.   An  online  portal 
(ConsultaLEX  Portal)  has  been  set  up  to  engage 
stakeholders in the preparation of new legislation.  

effective 
involvement, 

legislation  more 

different 
and 

by 

this 

figure  went  down 

Late  payments,  despite  improvements, are  a 
critical  issue  in  Portugal.  Average  payment 
delays to suppliers in the public sector are slowly, 
but  steadily  improving.  For 2018,  the  overall 
figure  was  59  days,  while  in  the  first  quarter  of 
2019, 
to  58  days. 
Nevertheless, there are still many areas where this 
indicator  remains  excessive,  such  as  the  health 
sector (SNS – Unidades de Saude EPE, where the 
average  delay  in  the   first  quarter  2019  was  228 
days)  or  some  administrations  of  the  central  state 
(for example Gestão Administrativa e Fianceira da 
Cultura  -  545  days)  and  the  Azores  region  (122 
days).  According  to the latest SAFE  Survey, 40% 

60 

                                                           
4.4. Competitiveness, reforms and investment* 

2017  which,  in  turn,  led  to  an  increase  of  nearly 
4% in the  number of public contracts obtained by 
SMEs (data from national eTendering platforms).  

public procurement chambers with wide territorial 
jurisdiction.   

to 

in 

and 

ex-ante 

competition 

However,  shortcomings  in  the  coordination, 
governance  and  planning  stage  still  hamper 
efficiency 
public 
procurement.  The  lack  of  appropriate,  structured 
and quantified plans that would enable contracting 
authorities 
control 
reinforce 
mechanisms  and  the  absence  of  adequate  training 
and professionalisation that would allow the use of 
tender  procedures  hinder 
more  sophisticated 
competition.  Since  contract  manager  figure  has 
been  set  up,  aiming 
in 
technically  and  financially  complex  contracts, 
the 
there  have  been  some 
supervision  of  contracts.  However,  shortcomings 
persist 
its 
recommendation  of  2  October  2019,  the  Council 
for  the  Prevention  of  Corruption  suggests,  among 
other  measures,  the  adoption  of  specific  planning 
the 
instruments 
public 
professionalisation  of  public  buyers  and 
the 
training  of  contract  managers  to  improve  their 
capability to monitor contracts.  

the  performance  phase.  With 

to  provide  support 

improvement 

procurement, 

for 

in 

in 

for  data  extraction  and 
In  addition, 

The  transparency  and  reliability  of  public 
procurement  data  as  well  as  sustainable  public 
procurement  are  improving.  The  Institute  of 
Public Procurement,  Real Estate  and Construction 
(IMPIC)  is  in  the  process  of  releasing  a  new 
business  intelligence  platform  with  automated 
procedures 
report 
generation. 
the  authorities  are 
currently  developing  a  National  Portal  for  State 
Suppliers  (centralised  register)  for  potential  state 
suppliers,  to  improve  transparency  and  speed  up 
procurement  procedures.  Regarding  green  public 
procurement, Portugal is currently implementing a 
national  strategy  for  green  public  procurement 
(Estratégia  nacional  para  as  compras  públicas 
ecológicas  2020,  ENCPE  2020)  which  provides 
for the inclusion of environmental criteria in public 
procurement.  

The  procedure  concerning  the  modifications  to 
the system of review and remedy procedures in 
public  procurement  is  ongoing.  The  amendment 
to  the  Statute  on  Administrative  and  Tax  Courts 
was  approved  by  Parliament.  In  this  regard,  the 
authorities  are  continuing  efforts  to  set  up  two 

Justice system 

to  111%  from  105% 

The  efficiency  of  the  Portuguese  justice  system 
continues  to  improve,  but  challenges  remain, 
mainly  in  administrative  and  tax  courts.  The 
clearance rate for administrative cases increased in 
2018 
in  2017,  while 
disposition time decreased from 988 days in 2017 
to  927  days  in  2018.  Despite  this  improvement, 
Portugal  remains  among  the  Member  States  with 
the  lengthiest  administrative  proceedings  (2020 
EU  Justice  Scoreboard,  forthcoming).  Portuguese 
companies perceive the judicial system as the area 
with  the  highest  obstacles  to  their  activity  –  49% 
of  companies  considering  the  duration  of  judicial 
proceedings as a high or very high obstacle (INE, 
2017). 

Portugal  continues  to  implement  measures  to 
reduce  case-backlogs  in  administrative  and  tax 
courts. The rapid reaction teams set up in 2018 to 
deal with a backlog of 71,446 cases brought before 
administrative  and  tax  courts  prior  to  2013  are 
already  operational.  Law  No.  114/2019  of 
12 September  2019  amending  the  statute  of  the 
administrative  and  tax  courts,  provides  for  the 
establishment  of  specialised  chambers,  both  in 
administrative  and  tax  matters,  whenever  justified 
by  the  volume  or  the  complexity  of  the  service. 
The  Portuguese  authorities  expect  to  set  up  two 
public  procurement  chambers,  10  administrative 
social  chambers,  and  11  tax  enforcement  and 
infraction  review  chambers,  but  the  timeline  for 
their  implementation  has  not  yet  been  defined. 
Portuguese  law  already  makes  provision  for  the 
creation of advisory cabinets to aid judges, but this 
has  not  yet  been  implemented.  This  measure  is 
also seen very positively by judges and other legal 
practitioners. 

Measures  designed  to  reduce  the  average 
duration  of  insolvency  proceedings  and  reduce 
existing  backlogs  continue  to  be  implemented. 
The  measures  announced 
in  2018,  such  as 
establishing the extrajudicial restructuring of firms 
and  introducing  the  legal  framework  for  debt  to 
implemented. 
equity  swaps,  have  been  fully 
Decree-Law  No.  38/2019  introduced  changes  to 
the  judicial  map  and  created  new  specialised 
jurisdiction  courts,  including  new  commercial 

61 

courts.  According  to  data  collected  through  the 
Council of Europe’s Commission for the efficiency 
of  justice,  the  disposition  time  in  insolvency  and 
recovery proceedings in 2018 fell to 53 days (from 
58  days  in  2017).  The  number  of  incoming  cases 
has  also  been  falling  consistently,  allowing  for  a 
positive  rate  of  resolving.  However,  a  backlog  of 
older  cases  remains,  as  61%  of  the  insolvency 
cases  closed  in  the  first  quarter  of  2019  had  been 
pending 
for  over  5  years.  Similarly,  civil 
enforcement actions taking more than five years to 
complete  still  accounted  for  34.5%  of  the  total  at 
the end of 2018. 

the 

to  promote  e-justice. 
Portugal  continued 
Implementation  continued  of 
‘Justiça  + 
Próxima’  programme,  focusing  on  improving  the 
efficiency and modernising the justice sector. This 
programme includes the “Tribunal +” pilot project, 
which  introduced  changes  in  the  functioning  of 
courts  (front  and  back  office),  as  well  as  new  IT 
equipment and solutions. There are plans to extend 
thisto  other  courts.  Moreover,  Decree-Law  No. 
97/2019 amended the  Code of Civil Procedure  by 
implementing  in  full  the  “digital  by  default” 
approach  in  civil  proceedings.  The  core  court  IT 
systems  are  also  being  modernised,  and  90%  of 
electronic  business  support  equipment  has  been 
renewed. 

Fight against corruption 

There  is  a  deterioration  in  perceptions  of 
corruption  in  the  business  world  in  Portugal. 
While  the  World  Bank  control  of  corruption 
indicator remained relatively unchanged in the past 
two  years,  more  recent  survey  data  shows  that 
companies’  perceptions  of  corruption  being 
widespread are on the rise in Portugal (92%), and 
among the worst in the EU. Corruption is seen as a 
problem in particular in public procurement, where 
79%  of  companies  think  that  it  is  widespread. 
Patronage  and  nepotism  continue  to  be  a  major 
concern  for  (49%)  of  businesses.  The  percentage 
of  those  who  believe  that  corruption  is  a  problem 
for  their  company  when  doing  business  has 
somewhat decreased since 2017, but is still at over 
50% 
(European  Commission,  2019e).  The 
Corruption  Perception  Index  2019  for  Portugal 
also registers a 2 point deterioration (Transparency 
International, 2020). 

4.4. Competitiveness, reforms and investment* 

the  Constitutional  Court 

Preventing  corruption  remains  an  area  of 
concern,  but  the  government  announced  a 
national  anti-corruption  strategy  which  may 
help  start  addressing  the  issue.  As  last  year’s 
country  report  showed,  preventing  corruption 
presents  some  shortcomings  in  Portugal  not  least 
due  to  the  lack  of  a  coordinated  strategy  and 
(European 
responsibilities 
fragmented 
Commission,  2019a).  The  parliamentary  Ad-hoc 
Committee  for  Enhancing  Transparency  in  the 
Exercise of Public Functions created to streamline 
anti-corruption  legislation  finalised  its  three-year 
work  in  2019.  Nevertheless,  there  was  no  clear 
strategy  steering  this  important  legislative  process 
which  resulted  in  some  piecemeal  legislative 
revisions.  For  example,  while  new  Transparency 
to 
Authority  within 
supervise  asset  and  interests  declarations,  this  has 
not  been  complemented  by  a  reform  leading  to  a 
more  effective  disclosure  of  asset  and  interest 
the  Council  of 
declarations  (also  raised  by 
Europe’s  Group  of  States  Against  Corruption).  In 
the  absence  of  such  a  reform,  the  Transparency 
Authority  may  face  serious challenges in  working 
effectively  to  verify  declarations  and  impose 
sanctions  (49).  A  further  law  was  adopted  in 
September  2019  (50)  setting  out  new  rules  for 
political  appointments,  following  media  reporting 
of some cases of family ties at top government and 
cabinet  level.  Efforts  to  promote  a  bill  regulating 
lobbying  activities  failed  after 
the  President 
returned  for  re-examination  a  bill  approved  by 
parliament  in  June.  A  national  anti-corruption 
strategy  has  been  announced 
in  December, 
including  actions  such  as  a  National  Anti-
Corruption  Report.  A  clear  strategy  is  necessary 
with  a  view  to  creating  a  coherent  and  watertight 
anti-corruption legislative and policy framework. 

The  prosecution  track  record  is  continuing  at 
good  pace  and  some  measures  were  taken  to 
improve  specialisation  and  training  of  anti-
corruption  prosecutors.  The  specialised  anti-
corruption  prosecution 
service  Departamento 
Central  de  Investigação  e  Acção  Penal  (DCIAP) 
continued  building  a  positive  track  record  of 
investigations,  securing  indictments  in  complex 
and high-level cases. A new statute for prosecutors 

(49)  Asset and interest declarations are currently submitted and 
the 
held 
Constitutional  Court.  Public  access,  although  permitted 
legally, is in practice very cumbersome. 

in  non-digital  format  at 

the  premises  of 

(50)  Law 78/2009 of 2 September. 

62 

                                                           
4.4. Competitiveness, reforms and investment* 

into  force 
in  January  2020  and 
will  enter 
specialised 
training  programs  are  ongoing. 
Nevertheless, a large proportion of the corruption-
investigations  are  concluded  without 
related 
indictments and, according to data of the Ministry 
of  Justice,  only  14%  of  those  convicted  for 
corruption in 2017 are serving a sentence in prison 
(Direção-Geral  da  Política  de  Justiça,  2019).  This 
is  reflected  also  in  the  perceptions,  with  45%  of 
businesses thinking that those guilty for corruption 
would face charges and  go to court but only 31% 
agreeing  that  they  would  be  heavily  fined  or 
imprisoned for their deeds (European Commission, 
2019f).  The  Public  Prosecutors  Union  cited  a 
persistent  lack  of  resources  in  the  specialised  unit 
of the judicial police to track illicit financial flows, 
as well as a lack of sufficient specialisation among 
public  prosecutors  in  investigating  economic  and 
financial crime (Publico, 2019). In order to address 
this  and  empower  the  regional  departments  for 
some 
penal 
organisational 
capacity-building 
measures are envisaged. 

investigations, 

actions 

further 

and 

and 

63 

4.5.  ENVIRONMENTAL SUSTAINABILITY 

investments 

With  climate  change  set  to  have  increasing 
impact on the Portuguese economy and society, 
the  government  has  set  an  ambitious  climate 
and  energy  agenda.  Due  to  climate  change, 
natural  hazards  such  as  floods,  coastal  erosion, 
droughts  and  forest  fires  are  expected  to  become 
more  frequent  and  extreme.  Portugal  has  recently 
experienced  dramatic  forest  fires  and  the  worst 
drought  recorded  in  the  history  of  the  country. 
Flooding  is  a  recurrent  problem  in  some  regions. 
Therefore,  measures  and 
in  risk 
prevention  and  climate-change  adaptation  and 
mitigation  are  necessary  to  achieve  sustainable 
growth. Portugal was one of the first EU countries 
to  commit  to  net  zero  emissions  by  2050  and 
published  in  June  2019  its  long-term  strategy  for 
carbon neutrality of the Portuguese economy. This 
strategy  is  also  a  key  input  to  the  Portuguese 
integrated  National  Energy  and  Climate  Plan51, 
which is the main instrument for the decade 2021-
2030, setting new national targets for the reduction 
GHG  emissions,  renewable  energy  and  energy 
efficiency.  The  implementation  of  such  plans  will 
be fundamental to progress in SDG 7 and SDG 13 
goals.  Within  SDG  13  on  Climate  action, 
indicators show some progress, however vigilance 
is required to achieve the 2050 objectives on GHG 
emissions  and  to  become  more  resilient  to  the 
climate impacts.  

The  energy  and  transport  sectors  are  the  main 
GHG  emitters  and  thus  remain  key  sectors  to 
decarbonise. The energy sector emissions are at a 
10-year peak and this sector is responsible for 28% 
of  the  country’s  national  emissions.  In  2017, 
Portugal  experienced  a  significant  dry  year  which 
led to a sharp reduction of the hydro share in total 
power  generation  from  28%  to  12%  and  its 
replacement  with  mostly  gas  and  coal  power.  In 
this 
the  Portuguese  government  has 
committed to decommissioning the two remaining 
coal-fired  power  plants  by  September  2023.The 
Transport  sector  accounts  for  23%  of  total  GHG 
emissions  and  37%  of  final  energy  consumption 
(vs.  EU  average  of  30%).  Transport  is  also 
dependent on oil for 95% of its energy needs. Road 
is  by  far  the  most  important  subsector  and  road 
emissions  have  been  increasing  since  2013,  in 
the  Portuguese 
recovery  of 
hand  with 

regard 

the 

51 The Commission will assess, in the course of 2020, the final 
National  Energy  and  Climate  Plan  submitted  by  Portugal 
on 31 December 2019. 

economy. Portugal is directing its policies towards 
modal shifting and the electrification of the sector, 
which  depends  on  investments  in  infrastructure, 
such  as  charging  infrastructure  and  electricity 
network.  Furthermore,  Portugal  is  also  promoting 
and  exploring  the  use  of  new  fuels  such  as 
hydrogen. 

Portugal’s GHG emissions per capita are below 
the  EU  average  and  the  country  is  on  track  to 
achieve 
its  Effort  Sharing  targets.  Further 
emissions  reductions  in  sectors  such  as  transport, 
buildings,  agriculture  and  waste  can  contribute  to 
the  cost  effective  achievement  of  EU  overall 
emissions  target.  In  addition,  the  country  can 
benefit economically from overachieving its target 
those  emissions 
as 
reductions  with  Member  States,  which  are  falling 
below their targets.  Regarding the GHG  intensity 
of  the  economy,  despite  an  overall  decreasing 
trend  it  remains  35%  above  EU  average.  This  is 
linked to the high share of fossil fuels in the energy 
mix (43.5% against 34.3% EU average) and to the 
poor  efficiency  in  fuel  combustion  (the  GHG  of 
fuel combustion is 6% above the EU average). 

it  may  potentially 

trade 

Graph 4.5.1:  Greenhouse gas emissions in Portugal by 

sectors 

Source: European Commission 

Portugal  is  close  to  meet  the  2020  renewables 
target  but  challenges  remain.  With  a  renewable 
share  in  final  energy  consumption  of  30.3%  in 
2018  (52),  Portugal  is  close  to  achieve  its  2020 
renewables target of 31%. However, its renewable 
energy share has slightly decreased in the last two 

(52)  Based on provisional Eurostata data for 2018. 

64 

051015202530199019952000200520102015202020252030Million tonnes CO2-eqEnergy supplyEnergy use in manufacturing industriesIndustrial processes and product useTransportOther energy useAgricultureWaste managementInternational aviation 
                                                           
  
                                                           
4.5. Environmental sustainability 

significant  efforts  in  the  deployment  of  solar 
capacity,  which  should  increase  from  today’s  0.7 
GW  to  9  GW  by  2030.  Other  technologies  to  be 
deployed  include  wind  and  pumped  hydro.  An 
enhanced  administrative,  regulatory  and  financing 
framework  would be  necessary to deliver on such 
ambitious objectives. The plan also underlines the 
importance of renewable energy decentralisation to 
meet decarbonisation objectives and contribute to a 
social  and  fair  energy  transition.  It  highlights  the 
need 
the  acquisition  and  use  of 
decentralized  production  systems,  accelerating 
participation  of  small  renewable  production  in 
market  mechanisms  and 
the  creation  of  an 
enabling environment to attract the participation of 
new  players  in  the  market,  including  energy 
communities. The recently published legal regime 
on  self-consumption  and  energy  communities  is  a 
first  step  towards  giving  a  new  impetus  to 
decentralised energy.   

to  foster 

from 

Better  connectivity  of  the  Iberian  Peninsula 
would  support  Portugal’s  ambition 
in  the 
deployment  of  renewable  energy.  Due  to  delays 
in  the  implementation  of  an  additional  electricity 
interconnection  with  Spain  (Fontefría  -  Ponte  de 
Lima),  Portugal’s  electricity  interconnection  level 
can be expected to remain below the 10% target in 
2020.  If  the  project  is  implemented  as  currently 
expected,  the  target  can  be  achieved  by  2021.  In 
addition,  Portugal  will  benefit 
further 
integration  of  the  Iberian  Peninsula  into  the 
infrastructure 
internal  market 
developments in Spain and France. Thus, regional 
cooperation on key infrastructure projects between 
Portugal,  Spain  and  France  under  the  high-level 
group  for  the  southwest  Europe  is  key  to  achieve 
progress.  In  addition,  Portugal  is  planning  a  250-
km  subsea  electricity  cable  with  Morocco.  While 
all 
interconnections  can  bring 
flexibility  to  the  country’s  grid  and  support 
renewables  integration,  the  risk  of  importing 
electricity produced from fossil fuels is real, taking 
into account Morocco’s  plans to increase its coal-
fired  capacity  and  lower  marginal  costs  in  that 
country. 

international 

new 

by 

(53).  Limited  grid 

years  mainly  due  to  the  increase  in  final  energy 
consumption  and  to  the  stagnation  of  renewable 
power  production 
and 
administrative  capacity  to  cope  with  the  high 
demand 
the 
implementation of projects. Timely deployment of 
projects  that  are  in  the  pipeline,  as  well  as 
sufficient  energy  efficiency  measures  to  keep 
energy consumption under control, remain crucial.  

for  new  projects  are  delaying 

A  significant  investment  effort  is  required  to 
meet  the  carbon  neutrality  goal.  Portugal  faces 
important  implementation  challenges  to  achieve 
the  ambitious  objectives  set  in  its  long-term 
strategy  for  carbon  neutrality  of  the  Portuguese 
economy.  Two  key  elements  stand  out  and  will 
require  significant  investments:  the  almost  full 
replacement  of  fossil  fuels  with  renewables 
sources in electricity production and the increased 
electrification  of  sectors,  in  particular  of  the 
transport  sector.  The  strategy  projects  additional 
annual  investments  of  around  €2  billion  (1.2%  of 
GDP) 
to  achieve  carbon  neutrality,  mostly 
concentrated in transport, buildings and electricity 
sectors,  with  the  majority  to  be  conducted  by  the 
private  sector,  including  households.  Portugal  is 
also  relying  on  European  funding  to  support  the 
required  investments.  As  Portugal  still  has  an 
outstanding  energy  tariff  debt  of  €2.7  billion, 
which  needs  to  be  repaid,  it  has  more  limited 
funding options and opportunities. In addition, the 
draft  National  Investment  Programme  (PNI  2030) 
includes  the  energy  sector  as  a  target  for  medium 
and long-term strategic investments, notably in the 
areas  of  power  generation,  networks  and  energy 
efficiency.  

An  ambitious  goal  for  the  share  of  renewables 
by  2030  implies  a  massive  deployment  of  new 
renewables generation capacity. The government 
committed  in  its  integrated  national  energy  and 
climate  plan  to  reach  47%  of  renewables  in  final 
energy  consumption  by  2030.  This  contribution 
would  imply  an  80%  share  of  renewables  in  the 
electricity  sector  (up  from  66%  in  2020)  and  a 
20%  renewable  share  in  the  transport  sector  (up 
from  10%  in  2020).  These  commitments  foresee 

(53)  Eurostat  data  show  that  final  energy  consumption  used  as 
denominator for the renewables share is going up. As to the 
numerator  the  RES  consumption  in  electricity  shows  a 
stagnant  trend  contrary  to  the  sectors  heating  and  cooling 
and 
See 
which 
https://ec.europa.eu/eurostat/web/energy/data/shares. 

transport 

increase. 

With  higher  use  of  renewables,  Portugal  could 
decrease 
its  high  dependence  on  energy 
imports.  Portugal  is  highly  depending  on  energy 
imports  compared  to  the  EU  average  (79.5%  vs. 
55%),  covering  with  imports  all  demands  for 
natural  gas,  oil  and  coal  consumption.  The  recent 

65 

                                                           
4.5. Environmental sustainability 

significant decrease in recent years, the percentage 
of  households  unable  to  keep  homes  adequately 
warm  still  stood  at  20%  in  2017.  Implementation 
of  instruments  in  line  with  the  EU  Smart  Finance 
for  Smart  Buildings  Initiative  and  with  other 
similar  mechanisms  that  are  already  in  place,  at 
European,  national  or  regional  level  could  unlock 
investments  and  attract  private  financing  for 
energy efficiency. 

A  successful  transition  to  a  carbon-neutral 
Europe by 2050 will not be possible without the 
use  of  digital  technologies  and  applications. 
Digitalisation  will  enable  the  transition  to  a 
circular  economy,  foster  innovation,  and  create 
growth  and  new  business  opportunities  and 
markets. Digital technologies and applications can 
save  7  to  10  times  more  emissions  than  they 
produce and enable a reduction of 15% to 20% of 
global CO2 emissions by 2030. At the same time, 
the  information  and  communication  technology 
sector 
itself  has  a  significant  environmental 
footprint,  accounting  for  5%  to  8%  of  the  total 
electricity  demand.  Without  proper  action,  this 
could increase to 20% by 2030, as the demand for 
data  centres,  cloud  computing  and  other  energy-
intensive 
artificial 
intelligence  and  blockchain  increase.  Portugal  has 
launched  an  initiative  for  national  sustainable 
advanced  computing  infrastructure  that  should 
contribute  positively  to  a  greener  information  and 
communication 
less 
efficient high performance computing machines by 
sustainable advance computing centres.  

technology,  by  replacing 

technologies 

such 

as 

a 

series 

established 

Risk  of  employment  and  skill  loss  in  carbon 
intensive  sectors  can  hinder  the  transition  to 
carbon  neutrality.  To  that  end,  the  Portuguese 
has 
government 
of 
programmes 
for  new  business  models  and 
opportunities  for  skill  development,  for  instance 
the  Interface  Programme,  linking  scientific  and 
business  knowledge  and  Portugal  2020,  focusing 
on  investment  strategies  and  job  creation.  As  of 
2019, there are already 10,000 direct jobs linked to 
the  renewable  energy  cluster,  included  nearly 
3,000  in  the  wind  power  cluster.  Overall,  the 
transition to a climate neutral economy is expected 
to  raise  the  employment  rate  by  0.4%  (European 
Commission, 2019g).  

The  transition  process  towards  a  climate 
neutral  economy  by  2050  will  have  social  and 

Portuguese solar photovoltaic auction set the world 
price record for the solar energy and confirmed the 
increasing  economic  competitiveness  of 
this 
technology  and  its  potential  to  further  expand 
Portugal’s  renewables  generation  capacity,  which 
today  is  largely  composed  of  hydro  and  onshore 
wind.  The  Portuguese  government  confirmed  that 
the results of this auction would help lower energy 
bills  for  consumers  and  that  further  auctions  to 
allocate  additional  renewable  capacity  would  take 
place.  Portugal  has  thus  strong  incentives  to 
maintain its strategy of developing further its high 
renewables  potential  across  all  sectors,  driving 
down the import bill, increasing security of supply 
and  at 
the 
the  same 
competitiveness of its economy. 

time  contributing 

to 

to 

and 

consumption 

industry  and 
(3.4% 

Energy  consumption  is  rising  and  progress  is 
slow  in  energy  efficiency  (54).  Portugal  has  only 
achieved 36% of the estimated cumulative energy 
savings  for  2014-2017.  The  latest  data  also  show 
that  Portugal’s  overall  energy  consumption  has 
transport 
risen,  mainly  due 
increasing 
1.8% 
respectively  from  2016  to  2017).  Portugal  is  still 
below  its  linear  trajectory  for  achieving  its  2020 
primary  and  final  energy  consumption  targets. 
Looking forward to 2030, Portugal has committed 
to  a  modest  contribution  to  the  EU  energy 
efficiency  2030  targets.    No  new  policies  or 
measures  going  beyond  those  announced  in  the 
2017 National Energy Efficiency Action Plan have 
been presented in the draft NECP. Embedding the 
“energy  efficiency  first”  principle  in  the  strategy 
would  allow  harnessing  energy  savings  in  other 
areas  and  policies,  in  particular  with  respect  to 
private and public investments.  

The building sector has a central role to play in 
the fulfilment of the energy and climate targets 
and  alleviating  energy  poverty.  The  building 
sector  accounts  for  17%  of  energy  consumption 
and  Portugal  still  has  a  wide  scope  to  improve 
in  buildings,  and  unlock 
energy  efficiency 
economic  and 
top  of 
environmental  ones.  Measures  in  this  area,  and  in 
particular  in  the  residential  segment,  can  help 
alleviate  energy  poverty,  which  remains  an 
in  Portugal.  Despite  a 
important  concern 

social  benefits  on 

54  See  Eurostat  indicators  for  tracking  Energy  Efficiency 
progress  (Primary  and  Final  Energy  consumption  (Europe 
2020-2030)). 

66 

                                                           
4.5. Environmental sustainability 

below  the  EU  average  of  1.89  €/kg  in  2018  (56). 
Moreover, the gross value added related to circular 
economy  sectors  was  0.79%  of  GDP,  below  the 
EU  average  of  1%  of  GDP  in  2017  (57).  At  the 
same  time,  Portugal  had  a  higher  percentage  of 
persons employed in circular economy sectors than 
the  EU  average  in  2017  (1.84%  compared  to 
1.69%  in  the  EU)  (58).  To  tackle  this  issue, 
Portugal  is  adopting  measures  to  promote  the 
transition towards a circular economy, as set in the 
National Action Plan for Circular Economy 2017-
2020. 

to  water 

particularly 

investments 

and  water 

Despite  the  progress  achieved  in  recent  years, 
challenges  remain  in  water  management.  This 
applies 
governance, 
body 
wastewater 
rehabilitation.  Regarding  water  supply,  there  is 
scope to reduce water leakages, where the majority 
of  losses  results  from  the  distribution  network  of 
smaller pipes (retail network) rather than from the 
transmission  network  of  larger  pipes  (bulk  water 
systems).  The  Portuguese  Water  and  Waste 
Services  Regulation  Authority  has  developed  a 
programme  and  is  testing  a  set  of  indicators  on 
infrastructure  value,  infrastructure  knowledge  and 
infrastructure management, in order to better know 
the  state  of  the  assets  for  water  services  and  thus 
supporting  more  accurate  planning  and  decisions 
for operation, maintenance and renewal. However, 
at  the  municipal  level,  the  sector  remains  highly 
fragmented and the reorganisation of the water and 
wastewater  services  has  not  yet  shown  its  full 
potential.  Regarding  urban  wastewater  treatment, 
the  investment  needs  to  meet  compliance  have 
been estimated by the OECD for urban wastewater 
treatment at €4,762 million until 2030 (59). Taking 
actions  to  address  these  challenges  would  lead  to 
progress on SDG 6. 

Waste  management  remains  a  persistent 
challenge  in  Portugal.  Indeed,  according  to  the 
Commission’s  Early  Warning  Report  (2018), 
Portugal is one of the countries at risk of  missing 
the EU target of recycling 50% of municipal waste 
by  2020.  According  to  2018  data,  the  overall 
is  29%.  There  are  also  big 
recycling  rate 
some 
differences  across 

regions.  Moreover, 

(56)  Eurostat, Resource productivity. 
(57)  ESTAT 
(58)  Eurostat, Circular Economy Indicators. 
(59)  OECD  (forthcoming),  Investment  needs  of  and  financing 

options for the EU water sector. 

impacts  and 

economic 
some  Portuguese 
territories risk to be affected more than others. 
The  closure  of  the  two  coal-fired  power  plants  in 
Sines  and  Pego,  which  are  the  largest  GHG 
emitters  in  Portugal  considering  all  sectors,  is 
expected  to  affect  around  650  direct  jobs  and  to 
modify  the  structure  of  the  respective  regional 
economies.  Other  territories  with  highly  polluting 
industries, such as Sines and Matosinhos with their 
manufacturing  of  refined  petroleum  products  and 
plastics, are also expected to experience significant 
negative  economic  and  social  impacts  resulting 
from the transition. To tackle these challenges, the 
European  Commission  has  proposed  that  the  Just 
Transition Fund is used to enable these regions and 
their  people  to  support  new  economic  activities, 
mainly  in  the  sectors  identified  in  their  smart 
specialisation  strategies,  and 
their 
economies more modern and competitive based on 
sustainable 
the 
social  costs  of  the  transition  by  ensuring  the 
employability and adaptability of workers affected 
from  the  plant  closures.  A  dedicated  investment 
guidance  for  the  Just  Transition  Fund  is  provided 
in Annex D. 

investments,  while  alleviating 

to  make 

Circular  economy:  improving  waste  &  water 
management,  dealing  with  air  quality  and 
using biodiversity sustainably 

from  EU 

During  the  last  decades,  the  implementation  of 
the  EU  environmental  law  and  policy  has 
contributed  to  preserve  and  to  improve  the 
in  Portugal,  with  significant 
environment 
assistance 
funding.  Nevertheless, 
Portugal  still  faces  considerable  environmental 
challenges  and  investment  needs  in  the  areas  of 
water  and  waste  management,  air  quality  and 
Environmental 
nature 
Implementation 
European 
(EIR), 
Commission  2019).  Furthermore, 
sustainable 
adequately 
been 
not 
has 
development 
mainstreamed  into  other  policy  areas  and  the 
potential of the green economy for competitiveness 
and job creation is underused. 

protection 

(second 

Review 

Material  resources  could  be  used  more 
efficiently  to  produce  wealth.  With  1.11  €/kg, 
resource  productivity  (55)  in  Portugal  was  well 

(55)  Resource productivity is defined as the ratio between GDP 

and domestic material consumption (DMC). 

67 

                                                           
                                                           
4.5. Environmental sustainability 

smoothing  seasonal  peaks  would  promote  green 
growth and job creation. 

barriers  to  invest  in  this  sector  can  be  observed, 
notably  regulatory  fragmentation,  too  low  waste 
tariffs and budgetary constraints (60). In particular, 
there  is  the  danger  that  surplus  mechanical  and 
biological treatment plants become stranded assets. 
The  capital  investments  needs  to  reach  the  EU 
recycling targets are estimated at €994 million for 
the  period  2021-35  for  Portugal  as  a  whole  (61).  
Taking  actions  on  this  field  will  contribute  to 
sustained progress to achieve SDG 12. 

Flooding,  droughts  and  forest  fires  remain 
recurring challenges in Portugal. Forest fires are 
a serious risk to Portugal, as stressed in the country 
reports of 2018 and 2019, with potentially macro-
economic  consequences.  Portugal  has 
taken 
additional  measures  regarding  forest  management 
and  the  prevention  of  forest  fires;  the  national 
forest strategy has been updated and improved.  

In 

personal 

particular, 

Air  quality  in  Portugal  continues  to  give  cause 
for  concern,  mainly  related  to  nitrogen  dioxide 
(NO2). 
transport 
exacerbates seasonal problems with air quality and 
traffic congestion in the major metropolitan areas, 
namely Lisbon, Porto and Braga, leading to health 
and  economic  costs  (62).  Total  external  costs  of 
transport for road and rail in Portugal are estimated 
at  €16.9  billion  annually,  which  corresponded  to 
(63).  A 
7.2%  of  Portugal’s  GDP 
comprehensive  approach  is  needed  to  tackle  this 
matter, bringing together environmental as well as 
economic and social benefits. 

in  2016 

Portugal  can  use 
its  nature  resources  to 
promote more sustainable tourism. Tourism has 
been  thriving  economic  sector  in  Portugal  in  the 
last years (see Section 1). The government adopted 
in 2017 the Strategy Tourism 2027, which is now 
inter  alia  on 
under 
sustainability  aspects.  Around  20%  of 
the 
Portuguese  territory  is  covered  by  Natura  2000 
sites,  belonging  to  the  EU  Natura  2000  network. 
Further  capitalising  on  this  rich  natural  capital,  in 
and 
addition 

implementation,  focusing 

diversification 

achieving 

to 

(60)  EIB,  EIB  Report  to  the  EC  on  Investment  Barriers  2019, 

p.28 

(61)  Eunomia  &  COWI  (2019)  Study  on  investment  needs  in 
the  waste  sector  and  on  the  financing  of  municipal  waste 
management in Member States, p. 67 

(62)  European  Environment  Agency,  Air  quality  in  Europe  — 

2019 report, pp.68-69 

(63)  Handbook on the external costs of transport, 2019, p.128 

68 

                                                           
 
ANNEX A: OVERVIEW TABLE 

Commitments  

Summary assessment (1) 

2019 country-specific recommendations (CSRs)  

Portugal  has  made  Limited  Progress  in  addressing 
CSR 1  

CSR  1:  Achieve 
the  medium-term  budgetary 
objective in 2020, taking into account the allowance 
linked  to  unusual  events  for  which  a  temporary 
deviation is granted. Use windfall gains to accelerate 
the  reduction  of  the  general  government  debt  ratio. 
Improve the quality of public finances by prioritising 
growth-enhancing  spending  while  strengthening 
overall  expenditure  control,  cost  efficiency  and 
adequate  budgeting,  with  a  focus  in  particular  on  a 
durable reduction of arrears in hospitals. Improve the 
financial  sustainability  of  state-owned  enterprises, 
transparent  and 
while  ensuring  more 
comprehensive monitoring.  

timely, 

Achieve  the  medium-term  budgetary  objective  in 
2020,  taking  into  account  the  allowance  linked  to 
unusual  events  for  which  a  temporary  deviation  is 
granted.  Use  windfall  gains 
the 
to  accelerate 
reduction of the general government debt ratio.  

The  compliance  assessment  with  the  Stability  and 
Growth  Pact  will  be  included  in  Spring  when  final 
data for 2019 will be available.  

Improve the quality of public finances by prioritising 
growth-enhancing  spending  while  strengthening 
overall  expenditure  control,  cost  efficiency  and 
adequate  budgeting,  with  a  focus  in  particular  on  a 
durable reduction of arrears in hospitals.  

  Limited Progress Public investment is projected 
to fall short of initial plans of the government in 
2019 and, despite the expected increase  in 2020, 
to remain significantly below the averages for the 
EU  and  the  euro  area.  Overall,  expenditure 
control,  cost  efficiency  and  adequate  budgeting 
continue  to  be  tackled  within  the  framework  of 
the  ongoing  review  of  public  expenditure, 
including in the health sector. In particular, a new 
fully-fledged programme to strengthen the overall 
sustainability  of  the  health  system  started  being 
implemented  in  2019,  and  a  formal  structure  to 
evaluate  the  managing  of  public  hospitals  was 
created  in  June  2019.  Nevertheless,  after  having 
decreased visibly in December 2018, mainly as a 
result  of  sizeable  ad-hoc  clearance  measures  in 
that  year,  hospital  arrears  are  back  on  a  steadily 
increasing path since July 2019.  

Improve  the  financial  sustainability  of  state-owned 
enterprises,  while  ensuring  more  timely,  transparent 
and comprehensive monitoring.  

  Limited 

Progress  Overall, 

state-owned 
enterprises  continue  to  struggle  to  achieve  a 
balanced financial position. At the same time, the 
debt  of  public  non-financial 
state-owned 
enterprises  included  in  general  government  has 
continued  to  decrease,  though  at  a  decelerating 
the 
pace.  Some  measures 
sustainability of state-owned enterprises are only 
the 
implemented, 
being  gradually 

strengthen 

including 

to 

69 

 
A. Overview table 

analysis  of  quarterly  data  aiming  to  identify  and 
correct  in  a  timely  manner  deviations  from  the 
approved  budgets.  The  capital  structure  of  a 
series  of  state-owned  enterprises  has  been 
strengthened  through  sizeable  capital  injections, 
and  the  liquidation  of  unprofitable  or  redundant 
firms has continued. Transparency regarding their 
improved  somewhat 
financial  position  has 
through  the  publication  of  aggregate  quarterly 
financial data within a shorter timeframe.  

level  of 

the  skills 

in  particular 

CSR  2:  Adopt  measures  to  address  labour  market 
the 
segmentation.  Improve 
population, 
literacy, 
including by  making adult learning  more  relevant to 
the  needs of the labour  market. Increase  the  number 
of higher education graduates, particularly in science 
and 
the 
effectiveness and adequacy of the social safety net.  

their  digital 

information 

technology. 

Improve 

Portugal  has  made  Some  Progress  in  addressing 
CSR 2  

Adopt  measures 
segmentation.  

to 

address 

labour  market 

  Some  Progress  Following 

the 

tripartite 
agreement  signed  in  2018,  new  changes  were 
introduced from October 2019 in the labour code, 
the  code  of  contributory  schemes,  the  legal 
framework  for  protection  of  employees,  the 
framework  of  active  labour  market  policies  and 
other  complementary  legislation.  The  Labour 
Inspection  Authority  was  reinforced  and  a  new 
extraordinary 
programme 
regularization 
employment 
contracts in civil service is ongoing. A temporary 
support  to  firms  to  convert  temporary  contracts 
into permanent contracts was set up (Converte +).  

precarious 

towards 

the 

of 

Improve  the  skills  level  of  the  population,  in 
particular  their  digital  literacy,  including  by  making 
adult  learning  more  relevant  to  the  needs  of  the 
labour market.  

  Some  Progress  The  Qualifica  programme 
participation  keeps  growing  and  a  significant 
number  of  persons  increased  their  educational 
attainment through the programme. More detailed 
follow-up  data  is  needed  to  assess  the  measure 
more 
is 
implementing  several  initiatives  to  improve  the 
digital  skills  deficit  of  the  population  but  to 
achieve  the  expected  result  Portugal  needs  to 
scale  up  the  projects  addressing  digital  literacy 
and go beyond the pilot phase.  

comprehensively. 

INCoDe.2030 

Increase  the  number  of  higher  education  graduates, 
particularly in science and information technology.  

  Some Progress The government has put in place 
several  measures  to  ease  the  access  to  higher 
education  and  increase  enrolment.  Number  of 
students  enrolled  in  higher  education  increased, 
as  well  as  for  graduates.  However,  those  on 
science  and  information  technology  remain  low 

70 

A. Overview table 

in percentage.  

Improve the effectiveness and adequacy of the social 
safety net.  

  Limited  Progress  Despite  the  improvements 
made in some social benefits in recent years, and 
the  new  measures  that  were  announced  for  the 
incoming  years,  no  specific  measures  have  yet 
been  taken  to  address  this  recommendation. 
Furthermore,  the  poverty  reduction  capacity  of 
social  transfers  (other  than  pensions)  as  well  as 
its  adequacy,  remain  comparatively 
in 
Portugal.  

low 

CSR  3:  Focus  investment-related  economic  policy 
on  research  and  innovation,  railway  transport  and 
port infrastructure, low carbon and energy transition 
and  extending  energy  interconnections,  taking  into 
account regional disparities.  

Portugal  has  made  Limited  Progress  in  addressing 
CSR 3  

investment-related  economic  policy  on 

Focus 
research and innovation,  

to 

in 

higher 

education 

(the  EU 

investments 

tax  and  financial  R&D 

  Limited  progress.  The  implementation  of  the 
Portugal  2020 
support 
strategy 
framework for 2013-2020) is well underway and 
a  reprogramming  aimed  at  assigning  additional 
funding 
innovation  was 
conducted  in  2019.    The  INTERFACE  scheme 
aims  to  strengthen  the  country’s  cluster  policy 
focus  mainly in the creation  of CoLABs and the 
existing 
incentives. 
However,  Initiatives  towards  counter  the  low 
existing cooperation among different key players 
institutions 
mobilizing 
(universities  and  polytechnic 
institutes)  and 
business  firms  were  very  limited.  Progress  on 
innovation  performance  was  accomplished  and 
the Portugal is now placed first in the “Moderate 
innovators”  group  by  the  European  Innovation 
Scoreboard  2019  but  business  investments  and 
co-publications public-private rates together with 
patenting  remain  well  below  EU  average.  The 
R&D  intensity  marginally  increased  in  2018  of 
0.04  points  to  1.37%  of  GDP  as  compared  to 
2017 confirming recent trends but values remains 
below  EU  average  and  distant  of  the  country 
target of 3%  for 2030. Thus,  further investments 
and  policy  efforts  are  necessary  in  particular  to 
foster 
linkages  between  R&D  actors  and 
businesses  and  support  a  thriving  innovation 
driven economy. 

railway transport and port infrastructure,  

  Limited  Progress.  There  has  been 

limited 
progress  with  the  main  railway  CEF  co-funded 
projects of the Programme Ferrovia 2020 and the 
pace  of  execution  has  been  slow.  The  tendering 

71 

A. Overview table 

procedures for the 2020 investments are still to be 
launched.  The  investment  situation  has  however 
improved  when  compared  to  the  2007-2013 
period,  when  most  grant  agreements  had  to  be 
cancelled.  There  is  also  limited  progress  in  port 
investments.  The  public  tender  for  the  new 
investment  project  in  the  container  terminal  in 
Sines  (Terminal  Vasco  da  Gama)  has  been 
launched,  but  the  concession  has  not  yet  been 
attributed  and  investments  have  not  yet  started. 
The  public  tendering  for  the  new  container 
terminal in Barreiro is yet to be launched.  

low  carbon  and  energy  transition  and  extending 
energy interconnections, taking into account regional 
disparities.  

remain 

challenges 

investment  commitments 

  Some  Progress.  Measures  are  being  taken  to 
increase  the  deployment  of  renewable  energy. 
The solar PX auction held in July was successful 
for 
in  attracting 
deploying  new  solar  capacity  (1.2  GW)  at 
competitive prices. The adoption in October 2019 
of the new regulatory framework addressing self-
consumption and renewables communities should 
also  provide  incentives  for  decentralised  energy 
investments.  Still, 
to 
streamline administrative procedures with respect 
to  new  renewables  projects.  Progress  has  been 
limited  on  the  energy  efficiency  front,  with 
primary energy consumption rising between 2014 
and  2017.  However, 
the  government  has 
announced  additional  measures  such  as  raising 
awareness and revising the regulation in industry, 
buildings  and  transport,  which  would  have  a 
positive impact on energy efficiency investments. 
Portugal  has  been  actively  involved  in  regional 
fora to improve energy connectivity of the Iberian 
Peninsula. Further progress is needed to advance 
the  new  electrical 
interconnection  between 
Portugal (Minho) and Spain (Galicia). Portugal is 
on  track  to  achieve  its  effort  sharing  emission 
target  where  further  emissions  reductions  in 
sectors  such  as  transport,  buildings,  agriculture 
and waste can be a cost-efficient way for the EU 
to reach its overall target.   

Portugal  has  made  Limited  Progress  in  addressing 
CSR 4  

CSR 4: Allow for a swifter recovery of the collateral 
tied  to  non-performing  loans  by  increasing  the 
efficiency  of  insolvency  and  recovery  proceedings. 
Reduce  the  administrative  and  regulatory  burden  on 
businesses,  mainly  by 
reducing  sector-specific 
barriers  to  licensing.  Develop  a  roadmap  to  reduce 
restrictions  in  highly  regulated  professions.  Increase 
the  efficiency  of  administrative  and  tax  courts,  in 

72 

A. Overview table 

particular by decreasing the length of proceedings.  

Allow  for a swifter recovery of the collateral tied to 
non-performing loans by increasing the efficiency of 
insolvency and recovery proceedings.  

  Some Progress. The efficiency of insolvency and 
recovery  proceedings  has  been  increasing  at  a 
slow pace, notwithstanding some reforms and the 
introduction  of  technology  in  some  instances. 
Overall time lags are still  very  high in European 
comparison.  

Reduce  the  administrative  and  regulatory  burden  on 
businesses,  mainly  by 
reducing  sector-specific 
barriers to licensing.  

under 

in  2019 

  Limited  Progress.  Over  the  last  years  several 
measures 
the 
introduced  mainly 
SIMPLEX+  programme  favoured  improvements 
in  the  business  environment  overall,  especially 
when  it  comes  to  the  introduction  of  the  once-
only  principle  and  e-government  policies.  New 
initiatives  were 
through 
launched 
programmes 
and  Capitalizar 
SIMPLEX+ 
addressing  the  business  environment,  due  for 
implementation  in  the coming  months,  such as a 
funding portal for firms and the introduction of a 
modernised  early  warning  mechanism.  Howver 
limited progress was achieved in reducing sector-
specific  burden  for  licensing.  Reforms  seldom 
replace ex ante by ex post controls, or even rely 
the 
on 
numerous  authorisation  schemes  in  place.  Long 
procedural  deadlines  for  decision  and  even 
absence  of 
tacit  approval  persist.  In  2019, 
progress  in  this  respect  was  recorded  only  for 
pressure  equipment.  The  roll  out  of  the  Point  of 
Single Contact for service activities and regulated 
professions  is  progressing  slowly.  Portugal  is 
making  efforts,  including  with  the  cooperation 
with  the  Structural  Reform  Support  Service,  to 
improve 
in 
particular  with  the  ambition  to  introduce  cost-
benefit  analysis  and  to  put  in  place  an  effective 
consultation system.  

responsible  declarations 

impact  assessment, 

regulatory 

replace 

to 

Develop  a  roadmap  to  reduce  restrictions  in  highly 
regulated professions.  

regulatory 

  No  Progress.  No  progress  has  been  made  in 
reducing 
restrictions  on  highly 
regulated  professions,  which  remain  sheltered 
from  competition.  A 
reduce 
restrictions  in  highly  regulated  professions  has 
not  been  developed.  This  is  despite  repeated 
European 
from 
recommendations 
Commission  and  the  recommendations  from  the 
OECD  and  Portuguese  Competition  Authority 
(2018).  

roadmap 

the 

to 

Increase  the  efficiency  of  administrative  and  tax 
courts,  in  particular  by  decreasing  the  length  of 

  Some  Progress.  The 

in 
administrative  and  tax  courts  has  increased  and 

clearance 

rate 

73 

A. Overview table 

proceedings.  

there  has  been  a  reduction  in  case  backlogs  and 
disposition  time.  However,  proceedings  before 
tax  and  administrative  courts  remain  among  the 
lengthiest  in  the  EU.  Measures  aiming  at  further 
improvements continue to be implemented.  

Europe 2020 (national targets and progress)  

Employment rate target set in the NRP: 75%.  

R&D target set in the NRP: 2.7% of GDP  

The  positive  trend  of  labour  market  developments 
continues  although  at  a 
slower  pace.  The 
employment rate kept growing steadily up to 76 % in 
Q2-2019 (above the Europe 2020 target of 75 %). 

R&D  intensity  had  been  on  decline  since  2010,  but 
the negative trend was reversed in 2016. However, at 
1.4 % of GDP in 2018, R&D intensity remains  well 
below  both  the  national  and  the  EU  R&D  intensity 
targets.  

In  2018, 
the  R&D 
intensity  of  Portugal  was 
(0.69%  of  GDP)  private 
composed  of  52% 
investment  and  48%  (0.64%  of  GDP)  public 
investment.  

National  greenhouse  gas  (GHG)  emissions  target:  
-  1%  in  2020  compared  with  2005  (in  sectors  not 
included in the EU emissions trading scheme)  

Portugal  non-ETS  emission  decreased  by  16% 
between  2005  and  2018,  and  has  achieved  its  2018 
target (an emissions decrease of 1%) by a 15 pps gap. 
According to the latest national projections based on 
existing  measures,  non-ETS  emissions  will  decrease 
by 24 % between 2005 and 2020. The 2020 target is 
consequently  expected  to  be  met  by  25  percentage 
points. 

74 

 
 
2020 renewable energy target: 31%  

Energy efficiency target:  

Portugal  has  set  an  indicative  national  energy 
efficiency  target  of  25%  reduction  of  final  energy 
consumption in 2020, which implies reaching a 2020 
level  of  22.5  Mtoe  primary  consumption  and  17.4 
Mtoe final energy consumption.   

A. Overview table 

Provisional Eurostat data for 2018 show that Portugal 
achieved an overall renewables share in final energy 
consumption of 30.3 %,  which puts it 0.7 p.p. away 
of  achieving  its  renewables  target  of  31%  by  2020. 
Although  Portugal  is  close  to  achieving  its  target, 
since  2016  the  overall  renewables  shares  has  been 
slightly  decreasing,  mostly  due  to  the  increase  in 
final  energy  consumption  and  to  the  stagnation  of 
renewable 
production.  Regarding 
transport, with a renewable energy share of 9.04% in 
2018  Portugal  is  getting  closer  to  achieving  the 
renewables 2020 transport target of 10%. 

electricity 

To  be  noted  that  in  2019  Portugal  has  updated  its 
renewable  energy  data  as  from  2014  to  include 
statistics for heat pumps. This has led to an increase 
in the overall renewable energy share in final energy 
consumption of circa 2.5 p.p. between 2014 and 2017 
and  to  a  rise  of  circa  6.5  p.p  in  the  share  of 
renewables  in  the  heating  and  cooling  sector,  which 
stood at 41.21% in 2018. 

Whereas 2017 figures showed an increase in primary 
and final energy consumption for Portugal, the recent 
data  for  2018  show  different  developments  for 
primary  and  final  energy  consumption.  Based  on 
provisional  Eurostat  data  for  2018,  the  primary 
energy  consumption  (22.6  Mtoe)  stood  at  a  slightly 
higher  level  than  the  2020  target  level  (22.5  Mtoe). 
The 2018 primary energy consumption is also lower 
than that of 2017 (22.8 Mtoe), breaking a three year 
period  of  consecutive  annual  increases.  Regarding 
the  final  energy  consumption,  Portugal  seems  to  be 
3.9 % below the target for 2020 (16.9 Mtoe while the 
target  (2020)  is  17.4  Mtoe).  However,  final  energy 
consumption has increased for the fourth consecutive 
year  (15.8  Mtoe  in  2014  -  16.9  Mtoe  in  2018). 
Therefore,  Portugal  still  need  efforts  to  keep  energy 
consumption in check in the coming years and ensure 
that 
final  energy 
consumption  remain  below  the  indicative  national 
2020 targets. 

levels  of  primary  and 

the 

Early school/training leaving target: 10%.  

Considerable progress was made in the last decade in 
reducing  the  early  school  leaving  rate  (from  30.9  % 
in 2009 to 11.8 % in 2018); rates are, however, much 
higher  in  the  autonomous  regions  of  Madeira  and 
Azores (28.3% in Azores compared vs. 11.2% in the 
continental  area,  in  2018).  Large  gender  disparities 
also exist (14.7% for men against 8.7% for women in 
2018). 

75 

A. Overview table 

Tertiary  education  target:  40%  of  population  aged 
30-34. 

tertiary  educational  attainment 

Portugal's 
level 
among the 30-34 years old cohort (33.5 % in 2018) is 
still  below  the  EU  average  (39.9  %),  but  increased 
significantly in the last decade (21.3% in 2009). The 
tertiary  education  attainment  rate  of  people  with 
disabilities is below the EU average (25.5 % vs. 30.3 
%  in  the  EU).  Foreign-born  students  have  higher 
attainment rate than native (36.8% vs. 33.1%). 

Risk of poverty or social exclusion target: the target 
envisages reducing the number of person in or at risk 
of  poverty  and  social  exclusion  by  200,000  persons 
in 2020 (base year 2008). 

The  number  of  people  at  risk  of  poverty  or  social 
exclusion  in  2018  was  535,000  less  than  in  2008, 
meaning  that  Portugal  has  already  surpassed  the 
target of 200,000. 

------------------------- 

(1)  The  following  categories  are  used  to  assess  progress  in  implementing  the  country-specific 
recommendations (CSRs):  

No  progress:  The  Member  State  has  not  credibly  announced  nor  adopted  any  measures  to  address  the 
CSR. This category covers a number of typical situations to be interpreted on a case by case basis taking 
into account country-specific conditions. They include the following:  
  no legal, administrative, or budgetary measures have been announced  
 
 

in the national reform programme, 
in any other official communication to the national Parliament/relevant parliamentary committees or 
the European Commission, 

  publicly (e.g. in a press statement or on the government's website); 
  no non-legislative acts have been presented by the governing or legislative body; 
 

the  Member  State  has  taken  initial  steps  in  addressing  the  CSR,  such  as  commissioning  a  study  or 
setting up a study group to analyse possible measures to be taken (unless the CSR explicitly asks for 
orientations or exploratory actions). However, it has not proposed any clearly-specified measure(s) to 
address the CSR. 

Limited progress: The Member State has:  
  announced certain measures but these address the CSR only to a limited extent; and/or 
  presented legislative acts in the governing or legislative body but these have not been adopted yet and 

substantial further, non-legislative work is needed before the CSR is implemented; 

  presented  non-legislative  acts,  but  has  not  followed  these  up  with  the  implementation  needed  to 

address the CSR. 

Some progress: The Member State has adopted measures  
 
 

that partly address the CSR; and/or  
that address the CSR, but a fair amount of work is still needed to fully address the CSR fully as only a 
few of the measures have been implemented. For instance, a measure or measures have been adopted 
by the national Parliament or by ministerial decision but no implementing decisions are in place.  
Substantial progress: The Member State has adopted measures that go a long way towards addressing 
the CSR and most of them have been implemented.  
Full  implementation:  The  Member  State  has  implemented  all  measures  needed  to  address  the  CSR 
appropriately. 

76 

 
 
ANNEX B: COMMISSION DEBT SUSTAINABILITY ANALYSIS AND 

FISCAL RISKS 

77 

General government debt projections under baseline, alternative scenarios and sensitivity tests2018201920202021202220232024202520262027202820292030Gross debt ratio122.2119.5117.1113.7110.5107.7105.1102.199.396.593.991.589.2Changes in the ratio (-1+2+3)-3.8-2.7-2.5-3.4-3.2-2.8-2.6-2.9-2.9-2.7-2.6-2.4-2.4of which(1) Primary balance (1.1+1.2+1.3)2.93.02.93.42.82.52.22.22.12.01.91.81.7(1.1) Structural primary balance (1.1.1-1.1.2+1.1.3)2.82.72.52.42.32.32.22.22.12.01.91.81.7(1.1.1) Structural primary balance (bef. CoA)2.82.72.52.42.42.42.42.42.42.42.42.42.4(1.1.2) Cost of ageing0.00.10.20.20.30.40.50.60.7(1.1.3) Others (taxes and property incomes)0.00.00.00.00.00.00.00.00.0(1.2) Cyclical component0.90.90.80.70.50.20.00.00.00.00.00.00.0(1.3) One-off and other temporary measures-0.7-0.6-0.40.30.00.00.00.00.00.00.00.00.0(2) Snowball effect (2.1+2.2+2.3)-1.5-0.9-0.8-1.1-0.4-0.3-0.4-0.8-0.8-0.8-0.7-0.7-0.7(2.1) Interest expenditure3.43.12.92.82.62.52.42.32.12.01.91.91.8(2.2) Growth effect-3.0-2.3-2.0-2.0-1.1-0.7-0.7-1.0-0.9-0.8-0.7-0.7-0.7(2.3) Inflation effect-2.0-1.7-1.8-1.9-2.0-2.0-2.1-2.1-2.0-1.9-1.9-1.8-1.8(3) Stock-flow adjustments0.61.21.31.10.00.00.00.00.00.00.00.00.0Note: For further information, see the European Commission Debt Sustainability Monitor (DSM) 2019. b. For the medium term, the risk category (low/medium/high) is based on the joint use of the S1 indicator and of the DSA results. The S1 indicator measures the fiscal adjustment required (cumulated over the 5 years following the forecast horizon and sustained after that) to bring the debt-to-GDP ratio to 60 % by 2034. The critical values used are 0 and 2.5 pps of GDP. The DSA classification is based on the results of five deterministic scenarios (baseline, historical SPB, higher interest rate, lower GDP growth and negative shock on the SPB scenarios) and the stochastic projections. Different criteria are used such as the projected debt level, the debt path, the realism of fiscal assumptions, the probability of debt stabilisation, and the size of uncertainties. c. For the long term, the risk category (low/medium/high) is based on the joint use of the S2 indicator and the DSA results. The S2 indicator measures the upfront and permanent fiscal adjustment required to stabilise the debt-to-GDP ratio over the infinite horizon, including the costs of ageing. The critical values used are 2 and 6 pps of GDP. The DSA results are used to further qualify the long term risk classification, in particular in cases when debt vulnerabilities are identified (a medium / high DSA risk category). [2]Thechartspresentaseriesofsensitivitytestsaroundthebaselinescenario,aswellasalternativepolicyscenarios,inparticular:thehistoricalstructuralprimarybalance(SPB)scenario(wheretheSPBissetatitshistoricalaverage),theStabilityandGrowthPact(SGP)scenario(wherefiscalpolicyisassumedtoevolveinlinewiththemainprovisionsoftheSGP),ahigherinterestratescenario(+1pp.comparedtothebaseline),alowerGDPgrowthscenario(-0.5pp.comparedtothebaseline)andanegativeshockontheSPB(calibratedonthebasisoftheforecastedchange).Anadversecombinedscenarioandenhancedsensitivitytests(ontheinterestrateandgrowth)arealsoincluded,aswellasstochasticprojections. Detailed information on the design of these projections can be found in the FSR 2018 and the DSM 2019.PT - Debt projections baseline scenario[1]Thefirsttablepresentsthebaselineno-fiscalpolicychangescenarioprojections.Itshowstheprojectedgovernmentdebtdynamicsanditsdecompositionbetweentheprimarybalance,snowballeffectsandstock-flowadjustments.Snowballeffectsmeasurethenetimpactofthecounteractingeffectsofinterestrates,inflation,realGDPgrowth(andexchangerates in some countries). Stock-flow adjustments include differences in cash and accrual accounting, net accumulation of assets, as well as valuation and other residual effects.[3] The second table presents the overall fiscal risk classification over the short, medium and long term. a. For the short-term, the risk category (low/high) is based on the S0 indicator. S0 is an early-detection indicator of fiscal stress in the upcoming year, based on 25 fiscal and financial-competitiveness variables that have proven in the past to be leading indicators of fiscal stress. The critical threshold beyond which fiscal distress is signalled is 0.46. 809010011012013014020172018201920202021202220232024202520262027202820292030Debt as % of GDP -PTBaselineEnhanced lower GDP growth scenarioAdverse combined scenarioEnhanced higher interest rate scenario809010011012013014020172018201920202021202220232024(% of GDP)Stochastic debt projections 2020-2024 -PTp10_p20p20_p40p40_p60p60_p80p80_p90p50Baseline809010011012013014020172018201920202021202220232024202520262027202820292030Debt as % of GDP -PTBaselineHistorical SPB scenarioSGP scenario809010011012013014020172018201920202021202220232024202520262027202820292030Debt as % of GDP -PTBaselineHigher interest rate scenarioNegative shock on the SPBLower GDP growth scenarioBaselineHistorical SPBLower GDP growthHigher interest rateNegative shock on SPBStochastic projectionsRisk categoryMEDIUMHIGHHIGHHIGHHIGHMEDIUMDebt level (2030)89.2104.494.893.790.5Debt peak year20192019201920192019Percentile rank21.0%47.0%Probability debt higher17.6%Dif. between percentiles36.7MEDIUMLong termLOW(S2 = -0.3)S1S2Short termLOW(S0 = 0.3)DSAHIGHDebt sustainability analysis (detail)Medium termHIGHMEDIUM(S1 = 2.3) 
ANNEX C: STANDARD TABLES 

Table C.1: 

Financial market indicators 

(1) Latest data Q3 2019. Includes not only banks but all monetary financial institutions excluding central banks. 
(2) Latest data Q2 2019. 
(3) Quarterly values are annualized. 
* Measured in basis points. 
Source: European Commission (long-term interest rates); World Bank (gross external debt); Eurostat (private debt); ECB (all 
other indicators). 

78 

201420152016201720182019Total assets of the banking sector (% of GDP)(1)271.4233.6213.5200.8192.0187.9Share of assets of the five largest banks (% of total assets)69.272.371.273.172.9-Foreign ownership of banking system (% of total assets)(2)20.523.322.530.331.731.3Financial soundness indicators:(2)              - non-performing loans (% of total loans)16.617.517.213.39.48.3              - capital adequacy ratio (%)12.313.312.315.215.216.1              - return on equity (%)(3)-3.50.9-5.5-0.82.75.3Bank loans to the private sector (year-on-year % change)(1)-5.2-2.6-2.1-0.70.91.5Lending for house purchase (year-on-year % change)(1)-3.8-3.7-2.3-1.20.40.8Loan to deposit ratio(2)84.981.580.878.976.276.7Central Bank liquidity as % of liabilities(1)8.87.76.96.95.85.5Private debt (% of GDP)190.1179.3169.1162.2155.4-Gross external debt (% of GDP)(2) - public98.592.078.372.067.468.7    - private46.645.649.950.950.248.0Long-term interest rate spread versus Bund (basis points)*259.0192.8308.3273.4144.3103.7Credit default swap spreads for sovereign securities (5-year)*173.0137.4216.7136.154.332.3 
 
 
  
 
C. Standard tables 

Table C.2: 

Headline Social Scoreboard indicators 

(1) People at risk of poverty or social exclusion (AROPE): individuals who are at risk of poverty (AROP) and/or suffering from 
severe material deprivation (SMD) and/or living in households with zero or very low work intensity (LWI).       
(2) Unemployed persons are all those who were not employed but had actively sought work and were ready to begin 
working immediately or within two weeks.       
(3) Gross disposable household income is defined in unadjusted terms, according to the draft Joint Employment Report 2019.       
(4) Reduction in percentage of the risk of poverty rate, due to social transfers (calculated comparing at-risk-of poverty rates 
before social transfers with those after transfers; pensions are not considered as social transfers in the calculation).       
(5) Average of first three quarters of 2019 for the employment rate, unemployment rate and gender employment gap.       

Source: Eurostat 

79 

201420152016201720182019 5Equal opportunities and access to the labour marketEarly leavers from education and training (% of population aged 18-24)17.413.714.012.611.8:Gender employment gap (pps)7.16.76.87.56.87.2Income inequality, measured as quintile share ratio (S80/S20)6.26.05.95.75.2:At-risk-of-poverty or social exclusion rate(1) (AROPE)27.526.625.123.321.6:Young people neither in employment nor in education and training (% of population aged 15-24)12.311.310.69.38.4:Dynamic labour markets and fair working conditionsEmployment rate (20-64 years)67.669.170.673.475.476.1Unemployment rate(2) (15-74 years)14.112.611.29.07.06.5Long-term unemployment rate (as % of active population)8.47.26.24.53.12.8Gross disposable income of households in real terms per capita(3) (Index 2008=100) 93.496.299.1101.2104.5:Annual net earnings of a full-time single worker without children earning an average wage (levels in PPS, three-year average)162071604315984:::Annual net earnings of a full-time single worker without children earning an average wage (percentage change, real terms, three-year average)-0.46-2.21-0.61:::Public support / Social protection and inclusionImpact of social transfers (excluding pensions) on poverty reduction(4)27.026.124.022.523.8:Children aged less than 3 years in formal childcare45.047.249.947.550.2:Self-reported unmet need for medical care3.53.02.42.32.1:Individuals who have basic or above basic overall digital skills (% of population aged 16-74):48.048.050.0:52.0 
 
  
 
 
C. Standard tables 

Table C.3: 

Labour market and education indicators 

* Non-scoreboard indicator       
(1) Long-term unemployed are people who have been unemployed for at least 12 months.       
(2) Difference between the average gross hourly earnings of male paid employees and of female paid employees as a 
percentage of average gross hourly earnings of male paid employees. It is defined as "unadjusted", as it does not correct for 
the distribution of individual characteristics (and thus gives an overall picture of gender inequalities in terms of pay). All 
employees working in firms with ten or more employees, without restrictions for age and hours worked, are included.       
(3) PISA (OECD) results for low achievement in mathematics for 15 year-olds.       
(4) Impact of socio-economic and cultural status on PISA (OECD) scores.       
(5) Average of first three quarters of 2019. Data for youth unemployment rate is seasonally adjusted.       
Source: Eurostat, OECD 

80 

Labour market indicators201420152016201720182019 5Activity rate (15-64)73.273.473.774.775.175.4Employment in current job by durationFrom 0 to 11 months13.214.214.414.715.1:From 12 to 23 months6.26.97.67.88.0:From 24 to 59 months13.111.912.913.914.7:60 months or over67.566.965.163.562.1:Employment growth* (% change from previous year)1.41.41.63.32.31.0Employment rate of women(% of female population aged 20-64)64.265.967.469.872.172.6Employment rate of men (% of male population aged 20-64)71.372.674.277.378.979.9Employment rate of older workers* (% of population aged 55-64)47.849.952.156.259.260.3Part-time employment* (% of total employment, aged 15-64)10.19.89.58.98.18.3Fixed-term employment* (% of employees with a fixed term contract, aged 15-64)21.422.022.322.022.021.0Transition rate from temporary to permanent employment(3-year average)25.826.228.230.3::Youth unemployment rate (% active population aged 15-24)34.732.028.223.820.318.2Gender gap in part-time employment4.95.45.35.64.85.8Gender pay gap(2) (in undadjusted form)14.917.817.516.3::Education and training indicators201420152016201720182019Adult participation in learning(% of people aged 25-64 participating in education and  training)9.69.79.69.810.3:Underachievement in education(3):23.8::::Tertiary educational attainment (% of population aged 30-34 having successfully completed tertiary education)31.331.934.633.533.5:Variation in performance explained by students' socio-economic status(4):14.9:::: 
 
  
 
C. Standard tables 

Table C.4: 

Social inclusion and health indicators 

* Non-scoreboard indicator       
(1) At-risk-of-poverty rate (AROP): proportion of people with an equivalised disposable income below 60 % of the national 
equivalised median income.        
(2) Proportion of people who experience at least four of the following forms of deprivation: not being able to afford to i) pay 
their rent or utility bills, ii) keep their home adequately warm, iii) face unexpected expenses, iv) eat meat, fish or a protein 
equivalent every second day, v) enjoy a week of holiday away from home once a year, vi) have a car, vii) have a washing 
machine, viii) have a colour TV, or ix) have a telephone.       
(3) Percentage of total population living in overcrowded dwellings and exhibiting housing deprivation.       
(4) People living in households with very low work intensity: proportion of people aged 0-59 living in households where the 
adults (excluding dependent children) worked less than 20 % of their total work-time potential in the previous 12 months.       
(5) Ratio of the median individual gross pensions of people aged 65-74 relative to the median individual gross earnings of 
people aged 50-59.       
(6) Fixed broadband take up (33%), mobile broadband take up (22%), speed (33%) and affordability (11%), from the Digital 
Scoreboard.       
Source: Eurostat, OECD 

81 

201320142015201620172018Expenditure on social protection benefits* (% of GDP)Sickness/healthcare6.26.16.06.06.0:Disability2.01.91.81.71.7:Old age and survivors14.614.714.413.913.7:Family/children1.21.21.21.21.2:Unemployment1.81.51.10.90.8:Housing0.00.00.00.00.0:Social exclusion n.e.c.0.20.20.20.20.2:Total26.025.524.724.023.6:of which: means-tested benefits2.22.12.01.91.9:General government expenditure by function (% of GDP)Social protection19.218.818.418.017.4:Health6.46.26.16.06.0:Education5.95.75.14.85.0:Out-of-pocket expenditure on healthcare27.027.727.727.827.5:Children at risk of poverty or social exclusion (% of people aged 0-17)*31.731.429.627.024.221.9At-risk-of-poverty  rate(1) (% of total population)18.719.519.519.018.317.3In-work at-risk-of-poverty rate (% of persons employed)10.510.710.910.910.89.7Severe material deprivation rate(2)  (% of total population)10.910.69.68.46.96.0Severe housing deprivation rate(3), by tenure statusOwner, with mortgage or loan3.54.03.23.43.12.7Tenant, rent at market price10.510.18.09.06.57.8Proportion of people living in low work intensity households(4) (% of people aged 0-59)12.212.210.99.18.07.2Poverty thresholds, expressed in national currency at constant prices*436443724489465047734842Healthy life yearsFemales9.35.65.46.46.7:Males9.66.97.07.77.9:Aggregate replacement ratio for pensions(5)0.60.60.60.60.70.7Connectivity dimension of the Digital Economy and Society Index (DESI)(6):54.457.363.067.4:GINI coefficient before taxes and transfers*54.856.355.554.754.0:GINI coefficient after taxes and transfers*34.234.534.033.933.5: 
 
  
 
C. Standard tables 

Table C.5: 

Product market performance and policy indicators 

Notes:  
*While the indicator values from 2003 to 2013 are comparable, the methodology has considerably changed in 2018. As a 
result, past vintages cannot be compared with the 2018 PMR indicators. 
(1) Value added in constant prices divided by the number of persons employed.       
(2) Compensation of employees in current prices divided by value added in constant prices.       
(3) The methodologies, including the assumptions, for this indicator are shown in detail here: 
http://www.doingbusiness.org/methodology.        
(4) Average of the answer to question Q7B_a. "[Bank loan]: If you applied and tried to negotiate for this type of financing 
over the past six months, what was the outcome?". Answers were codified as follows: zero if received everything, one if 
received 75% and above, two if received below 75%, three if refused or rejected and treated as missing values if the 
application is still pending or don't know.       
(5) Percentage population aged 15-64 having completed tertiary education.       
(6) Percentage population aged 20-24 having attained at least upper secondary education.       
(7) Index: 0 = not regulated; 6 = most regulated. The methodologies of the OECD product market regulation indicators are 
shown in detail here: http://www.oecd.org/competition/reform/indicatorsofproductmarketregulationhomepage.htm       
(8) Simple average of the indicators of regulation for lawyers, accountants, architects and engineers.       
(9) Aggregate OECD indicators of regulation in energy, transport and communications (ETCR).       
Sources: European Commission; World Bank — Doing Business (for enforcing contracts and time to start a business); OECD (for 
the product market regulation indicators); SAFE (for outcome of SMEs' applications for bank loans).       

82 

Performance indicators201320142015201620172018Labour productivity per person1 growth (t/t-1) in %Labour productivity growth in industry0.890.36-0.47-0.600.33-0.63Labour productivity growth in construction4.04-3.70-1.260.650.69-0.26Labour productivity growth in market services2.64-3.66-2.17-1.03-1.60-0.76Unit Labour Cost (ULC) index2 growth (t/t-1) in %ULC growth in industry0.460.121.211.752.413.89ULC growth in construction-2.362.612.451.050.573.96ULC growth in market services-1.010.873.631.333.834.04Business environment201320142015201620172018Time needed to enforce contracts3 (days)870870755755755755Time needed to start a business3 (days)6.06.06.06.06.56.5Outcome of applications by SMEs for bank loans40.710.680.550.600.540.53Research and innovation201320142015201620172018R&D intensity1.321.291.241.281.321.35General government expenditure on education as % of GDP5.905.705.104.805.00:Employed people with tertiary education and/or people employed in S&T as % of total employment303334353636Population having completed tertiary education5182021222223Young people with upper secondary education6707277787981Trade balance of high technology products as % of GDP-1.56-1.61-1.56-1.76-1.86-2.18Product and service markets and competition2003200820132018*OECD product market regulation (PMR)7, overall2.121.691.291.34OECD PMR7, retail3.293.971.832.55OECD PMR7, professional services8:3.082.922.24OECD PMR7, network industries93.092.552.181.22 
 
   
 
C. Standard tables 

Table C.6:  Green growth 

All macro intensity indicators are expressed as a ratio of a physical quantity to GDP (in 2010 prices)  
          Energy intensity: gross inland energy consumption (in kgoe) divided by GDP (in EUR)  
          Carbon intensity: greenhouse gas emissions (in kg CO2 equivalents) divided by GDP (in EUR)  
          Resource intensity: domestic material consumption (in kg) divided by GDP (in EUR)  
          Waste intensity: waste (in kg) divided by GDP (in EUR)  
Energy balance of trade: the balance of energy exports and imports, expressed as % of GDP.   
Weighting of energy in HICP: the proportion of 'energy' items in the consumption basket used for the construction of the HICP.  
Difference between energy price change and inflation: energy component of HICP, and total HICP inflation (annual % 
change).  
Real unit energy cost: real energy costs as % of total value added for the economy.  
Industry energy intensity: final energy consumption of industry (in kgoe) divided by gross value added of industry (in 2010 
EUR).  
Real unit energy costs for manufacturing industry excluding refining: real costs as % of value added for manufacturing sectors.  
Share of energy-intensive industries in the economy: share of gross value added of the energy-intensive industries in GDP.  
Electricity and gas prices for medium-sized industrial users: consumption band 500–20 00MWh and 10 000 -100 000 GJ; figures 
excl. VAT.  
Recycling rate of municipal waste: ratio of recycled and composted municipal waste to total municipal waste.  
Public R&D for energy or for the environment: government spending on R&D for these categories as % of GDP.  
Proportion of GHG emissions covered by EU emissions trading system (ETS) (excluding aviation): based on GHG emissions.  
(excl. land use, land use change and forestry) as reported by Member States to the European Environment Agency.  
Transport energy intensity: final energy consumption of transport activity including international aviation (kgoe) divided by 
gross value added in transportation and storage sector (in 2010 EUR).  
Transport carbon intensity: GHG emissions in transportation and storage sector divided by gross value added in transportation 
and storage sector (in 2010 EUR).  
Energy import dependency: net energy imports divided by gross inland energy consumption incl. consumption of 
international bunker fuels.  
Aggregated supplier concentration index: Herfindahl index covering oil, gas and coal. Smaller values indicate larger 
diversification and hence lower risk.  
Diversification of the energy mix: Herfindahl index covering natural gas, total petrol products, nuclear heat, renewable 
energies and solid fuels. Smaller values indicate larger diversification.  
* European Commission and European Environment Agency - 2018 provisional data.  
Source: European Commission and European Environment Agency (Share of GHG emissions covered by ETS); European 
Commission (Environmental taxes over labour taxes and GDP); Eurostat (all other indicators). 

83 

Green growth performance201320142015201620172018MacroeconomicEnergy intensity kgoe / €0.130.130.130.130.130.13Carbon intensity kg / €0.380.380.390.380.39-Resource intensity (reciprocal of resource productivity)kg / €0.870.910.910.880.900.89Waste intensity kg / €-0.08-0.08--Energy balance of trade % GDP-3.7-3.6-2.3-1.6-2.2-2.5Weighting of energy in HICP%8.597.868.258.118.277.95Difference between energy price change and inflation p.p.2.61.7-1.9-2.1-1.91.5Real unit of energy cost% of value added19.920.421.121.9--Ratio of environmental taxes to labour taxesratio0.160.170.180.190.19-Environmental taxes% GDP2.22.32.42.62.62.6Sectoral Industry energy intensity kgoe / € 0.140.140.130.130.130.13Real unit energy cost for manufacturing industry excl. refining% of value added15.415.816.316.9--Share of energy-intensive industries in the economy% GDP7.667.857.957.927.86-Electricity prices for medium-sized industrial users€ / kWh0.110.120.110.110.110.11Gas prices for medium-sized industrial users€ / kWh0.040.040.040.030.030.03Public R&D for energy % GDP0.010.010.010.010.010.01Public R&D for environmental protection% GDP0.010.010.020.020.020.02Municipal waste recycling rate%25.830.429.830.928.4-Share of GHG emissions covered by ETS*%39.038.440.838.342.839.2Transport energy intensitykgoe / €0.900.940.951.000.971.06Transport carbon intensitykg / €0.750.840.810.860.820.83Security of energy supplyEnergy import dependency%73.372.178.274.079.9-Aggregated supplier concentration indexHHI28.028.231.930.226.4-Diversification of energy mixHHI30.931.129.731.229.930.2 
  
 
ANNEX D: INVESTMENT GUIDANCE ON JUST TRANSITION FUND 

2021-2027 FOR PORTUGAL 

Building on the Commission proposal, this Annex presents the preliminary views of Commission services 
on  priority  investment  areas  and  framework  conditions  for  effective  delivery  for  the  2021-2027  Just 
Transition Fund investments in Portugal (64).  

These priority investment areas are derived from the broader analysis of territories facing serious  socio-
economic challenges deriving from the transition process towards a climate-neutral economy of the Union 
by  2050  in  Portugal,  assessed  in  the  report.  This  Annex  provides  the  basis  for  a  dialogue  between 
Portugal  and  the  Commission  services  as  well  as  the  relevant  guidance  for  the  Member  States  in 
preparing  their  territorial  just  transition  plans,  which  will  form  the  basis  for  programming  the  Just 
Transition Fund. The Just Transition Fund investments complement those under Cohesion Policy funding 
for which guidance in the form of Annex D was given in the 2019 Country Report for Portugal (65). 

In  Portugal,  there  are  two  remaining  coal-fired  power  plants:  in  the  regions  of  Alentejo  Litoral 
(municipality of Sines) and Médio Tejo (in Pego, municipality of Abrantes). These plants are the largest 
greenhouse  gas emitters in Portugal, all sectors included. Highly polluting industries of  manufacture of 
refined  petroleum  products  and  plastics  are  also  located  in  Sines  and  Matosinhos.  In  line  with  the 
Portuguese  Carbon  Neutrality  Roadmap  2050  targets  reflected  in  Portugal’s  draft  National  Energy  and 
Climate  Plan,  the  Portuguese  government  has  committed  to  decommissioning  these  two  plants  by 
September 2023. 

Estimates suggest that the closure of the plants would affect around 650 jobs: 350 in Sines, 200 in Pego, 
and 100 in the port of Sines where coal is received. For the two municipalities (Sines and Abrantes), the 
jobs  at  stake  correspond  to  almost  8%  and  3%  of  the  total  number  of  people  employed.  Based  on  this 
preliminary assessment, it appears warranted that the Just Transition Fund concentrates its intervention on 
these regions. 

In  order  to  tackle  these  challenges,  high  priority  investment  needs  have  been  identified  to  make  the 
economies of these regions more modern  and competitive based on sustainable investments and to help 
these regions to absorb the structural changes of the transition. Key actions of the Just Transition Fund 
could target in particular: 

• 

• 

• 

• 

• 

• 

investment in the deployment of technologies and infrastructures for affordable clean energy, energy 
efficiency and renewable energy;  

investment  in  the  creation  of  new  firms,  including  through  business  incubators  and  consulting 
services; 

investment in research and innovation activities and fostering the transfer of advanced technologies; 

investment  in  enhancing  the  circular  economy,  including  through  waste  prevention,  reduction, 
resource efficiency, reuse repair and recycling; 

productive investments in SMEs, including start-ups; and 

investment  in  the  regeneration  and  decontamination  of  sites,  land  restoration  and  repurposing 
projects. 

(64)  This Annex is to be considered in conjunction with the EC proposal for a Regulation of the European Parliament and of the 
Council  on  the  Just  Transition  Fund  2021-2027  (COM  (2020) 22)  and  the  EC  proposal  for  a  Regulation  of  the  European 
Parliament and of the Council laying down common provisions on the European Regional Development Fund, the European 
Social Fund Plus, the Cohesion Fund, and the European Maritime and Fisheries Fund and financial rules for those and for the 
Asylum and Migration Fund, the Internal Security Fund and the Border Management and Visa Instrument (COM (2020) 23). 

(65) SWD(2019) 1021 final 

84 

 
                                                           
D. Investment guidance on Just Transition Fund 2021-2027 for Portugal 

The  smart  specialisation  strategies  of  Centro  and  Alentejo  (66)  provide  an  important  framework  to  set 
priorities for innovation in support of economic transformation. The economic diversification process that 
Centro  and  Alentejo  could  undergo  to  pave  the  way  to  their  decarbonisation  may  take  account  of  the 
sectors  identified  in  their  respective  regional  smart  specialisation  strategies  referring,  inter  alia,  to  the 
development of the renewable energy sector (in particular, there is potential for wind, solar biomass and 
hydrogen) and energy efficiency as activities leading to new employment opportunities, from which the 
workers  affected  could  benefit;  they  also  refer  to  agribusiness,  wood,  biotechnology  and  sustainable 
tourism through the fostering of natural and cultural heritage, as sectors with high potential.  

Given the dimension of the challenge, exceptionally, and where necessary for the implementation of the 
territorial  just  transition  plan,  it  could  be  considered  support  to  productive  investments  in  large 
enterprises. Furthermore, large enterprises in these municipalities, performing activities listed in Annex I 
to Directive 2003/87/EC employ a substantial number of workers and their activity is at risk due to their 
high  greenhouse  gas  emissions.  Support  to  investments  to  reduce  the  emissions  could  be  considered, 
provided  that  they  achieve  a  substantial  reduction  of  emissions  (going  substantially  below  the  relevant 
benchmarks used  for  free  allocation  under  Directive  2003/87/EC)  and  on  the  condition  that  the 
investments are compatible with the European Green Deal.  

Moreover,  priority  investment  needs  have  been  identified  to  alleviate  the  social  costs  of  the  transition, 
thereby ensuring the employability and adaptability of  workers affected  from the plant closures.  Active 
Labour  Market  Policies  aimed  at  equipping  those  affected  with  skills  and  competences  in  demand  by 
employers could be developed, as well as intensified job search support to ensure a rapid transition into 
new employment. Key actions of the Just Transition Fund could target in particular: 

• 

• 

• 

upskilling and reskilling of workers; 

job-search assistance to jobseekers; 

active inclusion of jobseekers. 

(66) As defined in Article 2(3) of Regulation EU 1303/2013 (CPR) 

85 

                                                           
ANNEX E: PROGRESS TOWARDS THE SUSTAINABLE 

DEVELOPMENT GOALS (SDGS) 

Assessment of Portugal’s short-term progress towards the SDGs (67) 

Table E.1 shows the data for Portugal and the EU-28 for the indicators included in the EU SDG indicator 
set used by Eurostat for  monitoring progress towards the SDGs in an EU context (68). As the short-term 
trend at EU-level is assessed over a 5-year period, both the value at the beginning of the period and the 
latest available value is presented. The indicators are regularly  updated on the SDI dedicated section of 
the Eurostat website. 

Table E.1: 

Indicators measuring Portugal’s progress towards the SDGs 

(67)  Data  extracted  on  9  February  2020 

from 

the  Eurostat  database 

(official  EU  SDG 

indicator 

set; 

see 

https://ec.europa.eu/eurostat/web/sdi/main-tables).  

(68)  The EU SDG indicator set is aligned as far as appropriate with the UN list of global indicators, noting that the UN indicators are 
selected for global level reporting and are therefore not always relevant in an EU context. The EU SDG indicators have strong 
links with EU policy initiatives. 

(Continued on the next page) 

86 

 
 
                                                           
 
  
 
E. Assessment of Portugal's progress towards the Sustainable Development Goals over the past 5- and 15-years periods 

Table (continued) 

(Continued on the next page) 

87 

 
 
 
   
 
E. Assessment of Portugal's progress towards the Sustainable Development Goals over the past 5- and 15-years periods 

Table (continued) 

(Continued on the next page) 

88 

 
 
 
   
 
E. Assessment of Portugal's progress towards the Sustainable Development Goals over the past 5- and 15-years periods 

Table (continued) 

(Continued on the next page) 

89 

 
 
 
   
 
E. Assessment of Portugal's progress towards the Sustainable Development Goals over the past 5- and 15-years periods 

Table (continued) 

Source: Eurostat 

90 

 
 
 
   
 
REFERENCES 

Banco de Portugal (2020), “Statistical Bulletin”, Issue 1, 22 January 2020. 

Bauer,  P.,  Fedotenkov,  I.,  Genty,  A.,  Hallak,  I.,  Harasztosi,  P.,  Martinez  Turegano,  D.,  Nguyen,  D., 
Preziosi, N., Rincon-Aznar, A., Sanchez-Martinez, M. (2020). Productivity in Europe: Trends and Drivers 
in a Service-Based Economy. JRC Technical Report. Joint Research Centre. Brussels, Belgium. 

Centre  for  Social  and  Economic  Research  (2019),  “Study  and  reports  on  the  VAT  Gap  in  the  EU-28 
Member States: 2019 final report”, TAXUD/2015/CC/131, 4 September 2019. 

DGEEC (2019). Perfil do docente 2017-2018 (Teacher profile 2017-2018) Portugal: Directorate-General 
of 
(DGEEC). 
file:///U:/A2/Antonio/Background%20documents/PORTUGAL/DGEEC_2019_PerfilDocente1718.pdf . 

Education 

Statistics 

Science 

and 

for 

DGES (2019). Concurso Nacional de Acesso (General Access Regime) Portugal: Directorate General for 
Higher Education (DGES). https://www.dges.gov.pt/pt/pagina/informacao-geral-publico. 

Direção-Geral  da  Política  de  Justiça  (2019),  Estatísticas  de  Justiça:  Corrupção.  Ministério  da  Justiça. 
Retrived  from  https://estatisticas.justica.gov.pt/sites/siej/pt-pt/Paginas/Corrupcao.aspx  (accessed  on  10 
October 2019). 

European  Commission  (2016),  “Report  on  Public  Finances  in  EMU  2016”,  Institutional  Paper  045, 
December 2016. 

European  Commission  (2018), "The  2018  Ageing  Report:  Economic  and  Budgetary  Projections  for  the 
EU Member States (2016-2070)", Institutional Papers, No 079, European Commission, 25 May 2018. 

European  Commission  (2019a),  “Country  Report  Portugal  2019”,  SWD(2019)  1021  final,  27  February 
2019. 

European Commission (2019b), “State of Health in the EU, Portugal, Country Health Profile 2019”, 2019 

European Commission (2019d), “Small Business Act Factsheet Portugal 2019”. 

European  Commission  (2019e),  “Taxation  Trends  in  the  European  Union  –Data  for  the  EU  Member 
States, Iceland and Norway”, 2019 Edition. 

European Commission (2019f), Flash Eurobarometer 482 on “Bussinesses’ attitudes towards corruption”, 
https://ec.europa.eu/commfrontoffice/publicopinion/index.cfm/survey/getsurveydetail/instruments/flash/s
urveyky/2248. 

European  Commission  (2019g),  “Portugal”,  Education  and  Training  Monitor  2018:  Country  Analysis, 
Luxembourg 
the 
Publications 
https://ec.europa.eu/education/sites/education/files/document-library-docs/et-monitor-report-2019-
portugal_en.pdf. 

European 

Union, 

Office 

of 

European  Commission  (2019h),  “Demographic  Scenarios  for  the  EU  –  Migration,  Population  and 
Education”. 

European Commission (2020a), "Debt Sustainability Monitor 2019”, European Commission, Institutional 
Paper, January 2020. 

European  Commission  (2020b),  “Taxation  Trends  in  the  European  Union  –Data  for  the  EU  Member 
States, Iceland and Norway”, 2020 Edition (forthcoming). 

91 

 
References 

European  Investment  Bank  (2019)  EIB  Group  survey  on  investment  and  investment  finance  2019 
Country overview – Portugal. 

European Observatory on Health Systems and Policies (2018), “Health System Review –Portugal, Phase I 
Final Report”, April 2018. 

Flachenecker,  F.,  Gavigan,  J.,  P.,  Goenaga,  X.,  Pasi,  G.,  Preziosi,  N.,  Stamenov,  B.,  Testa,  G.  (2020). 
High  Growth  Enterprises:  demographics,  financing  &  policy  measures.  JRC  Technical  Report.  Joint 
Research Centre. Brussels, Belgium. 

GEP (2017), Carta Social, Rede de Serviços e Equipamentos 2017 (Social Card  – Network of Services 
and Equipment 2017). Portugal: Ministério do Trabalho, Solidariedade e Segurança Social, Gabinete de 
Estratégia e Planeamento (Ministry of Employment, Solidarity and Social Security, Office of Strategy and 
Planning) http://www.cartasocial.pt/pdf/csocial2017.pdf. 

GEP  (2019),  Boletim  Estatístico  Dezembro  2019,  Ministério  do  Trabalho,  Solidariedade  e  Segurança 
Social, Gabinete de Estratégia e Planeamento, www.gep.mtsss.gov.pt  

Godinho, M., Corado Simões, V. and Sanchez-Martinez, M., (2020). RIO Country Report 2019: Portugal. 
Joint Research Centre. Brussels, Belgium, 2020. available at JRC Scientific Knowledge Portal. 

Grupo de Trabalho para o Estudo dos Benefícios Fiscais, “Os benefícios fiscais em Portugal – conceitos, 
metodologia e prática”, May 2019. 

Instituto Nacional de Estatística (2017). Survey on Framework Regulation Costs, July 2017. 

Lei n.º 55/2017, de 17 de julho.  

Lei n.º 93/2019, de 4 de setembro.  

Ministry of Finance (2019), “Relatório despesa fiscal 2019”, October 2019. 

OECD  (2018),  OECD  Competition  Assessment  Reviews:  Portugal:  Volume  I  -  Inland  and  Maritime 
Transports and Ports, OECD Publishing, Paris. https://doi.org/10.1787/9789264300026-en 

OECD  (2018b),  OECD  Competition  Assessment  Reviews:  Portugal:  Volume  II  -  Self-Regulated 
Professions, OECD Publishing, Paris. https://doi.org/10.1787/9789264300606-en 

OECD  (2019a)  PISA  2018  results,  where  all  students  can  succeed.  Volume  II  https://www.oecd-
ilibrary.org/education/pisa-2018-results-volume-ii_b5fd1b8f-en  

OECD (2019b), Education Policy Outlook http://www.oecd.org/education/policy-outlook/  

OECD  (2019c),  TALIS  2018  Results  (Volume  I):  Teachers  and  School  Leaders  as  Lifelong  Learners, 
TALIS www.oecd.org/education/talis/talis-2018-results-volume-i-1d0bc92a-en.htm 

OECD/European  Observatory  on  Health  Systems  and  Policies  (2019), Portugal.  Country  Health  Profile 
2019, State of Health in the EU, OECD Publishing, Paris/European Observatory on Health Systems and 
Policies, Brussels. 

Público (2019), “Queixas de corrupção são arquivadas em 94% dos casos”, Público, Lisboa, 6 July 2019. 
Retrieved  from  https://www.publico.pt/2019/07/06/sociedade/noticia/queixas-corrupcao-sao-arquivadas-
94-casos-1878985 (accessed on 10 October 2019). 

92 

 
References 

World Bank (2019), “Paying Taxes 2019”, November 2019. 

WHO  Regional  Office  for  Europe  (2019),  Can  people  afford  to  pay  for  health  care?  New  evidence  on 
financial protection in Europe. WHO Regional Office for Europe, Copenhagen,  https://apps.who.int/iris/ 
bitstream/handle/10665/311654/9789289054058-eng. pdf?sequence=1&isAllowed=y. 

93