portugal - igcp · 7/5/2019 · portugal has turned the corner from the european crisis, with...

July 5, 2019

PORTUGAL

ECONOMICS & STATE FUNDING

Portugal has turned the corner from the European crisis, with economicrebalancing and structural reforms underpinning the recovery

Source: EC, IGCP

2

Executive summary

1. Economic revitalization, following a sustained recovery in the past 5 years. Portugal should continue to grow above EA average.

2. Strong growth foundations led to the correction of macroeconomic imbalances, resulting in successive current and capital account surpluses since 2013.

3. Private sector turnaround, following an extensive deleveraging process and balance sheet strengthening.

4. Fiscal stabilization, based on sizable fiscal adjustments, successive primary surpluses and lower interest charges, resulting in a sustained downward trend of GG debt.

5. Resilient public debt structure, enhancing shock-absorptive capacities.

6. Improving market conditions, based on lower financing costs and broadening investor base.

Outline

2

6

10

14

18

-15

-10

-5

0

5

1995 1998 2001 2004 2007 2010 2013 2016 2019

% la

bo

ur

forc

e

% G

DP

Current account balance (LHS)Primary balance (LHS)Primary balance, excl BES/Banif resolutions (LHS)Unemployment rate (RHS)

Boom Slump CrisisBalancedGrowth

EC f

ore

cast

s

http://igcp-portal2/ED/Templates/Logotipos IGCP/Image Library/Apresentacoes/Armi11t.png


Outline

3

1.

1. Economic revitalization

2. Stronger growth foundations

3. Private sector turnaround

4. Fiscal stabilization

5. Resilient public debt structure

6. Improving market conditions

1.




Clear economic revitalization, underpinned by structural reforms

Source: Eurostat

[Real GDP, YoY %]

Unemployment below pre-crisis level

[% labor force]

Source: Eurostat

Robust GDP growth, above 2% in 2018

4

7,7

14,0

10,2

6,4

0

5

10

15

20

25

30

Euro area Spain Italy Portugal




Stronger GDP growth (1/2)

[GDP YoY % and pp] [Contributions to YoY real private consumption growth, %]

Source: Statistics Portugal Source: Statistics Portugal

5

Sustainable domestic and external demand Improved confidence backs steady private consumption

1,8

-12

-10

-8

-6

-4

-2

0

2

4

6

8

10

Private consumption Public consumption GFCF

Change in inventories Exports Imports

GDP

2,5

-8

-6

-4

-2

0

2

4

Food and beverage products Durable goods

Non-durable goods and services Final consumption expenditure of NPISH




Stronger GDP growth (2/2)

Robust exports growth … … supported by a shift in investment pattern

[Contributions to YoY real Exports growth, %] [Contributions to YoY real GFCF growth, %]


6

3,4

-4

-2

0

2

4

6

8

10

12

Exports of services Exports of mineral products

Exports of goods excluding mineral products Exports of goods and services

11,7

-24

-20

-16

-12

-8

-4

0

4

8

12

16

Other machinery and equipment Transport equipment

Construction Others

Gross fixed capital formation

3,7

11,6



Labor market supported by growth and reforms

Broad-based job creation

[% of total population] [Contributions to YoY employment growth, %]

7


Both employment and participation rates are up

Source: Statistics Portugal Source: Eurostat

[% of total population]



Inflation in Portugal is below that of the Euro Area, with most sectorscontributing positively

Portugal’s inflation has been highly volatile… … and not so much in the Euro Area.

[Contributions to yoy HICP growth, %]

Source: Eurostat Source: Eurostat

8


[Contributions to yoy HICP growth, %]

HICP average (2018)1,2%

HICP average (2018)

1,7%




Steady growth cycle based on balanced growth and employment creation

Main indicators for the Portuguese economy

Sources: Statistics Portugal, Ministry of Finance, Banco de Portugal, International Monetary Fund and European Commission

9

[YoY, %, unless otherwise stated]



Outline

10

1.







2.



Economic structure better adapted for sustainable recovery cycle, as exportsnow weigh more than 40% of GDP

GDP composition (current prices) GVA composition (current prices)

[% of GDP] [% of GVA]


11





Strong reversal of external imbalances based on structural dynamics…

From chronic external deficits to sustained surpluses New composition of current and capital accounts

[% GDP] [EUR million]

12

Source: Eurostat Source: Banco de Portugal



…buoyed by strong gains in exports’ market share


13

Significant gains in exports’ market share

[Index 1Q2007=100]

Source: OECD

[Labour cost index vs. Germany, 2001Q1=100]

Significant competitiveness gains since 2011

Source: Eurostat



Exports diversification improves resilience to external shocks

Broader sectoral diversification

[Goods exports by sector, %]

Source: Statistics Portugal

14



Geographical diversification sustaining exports growth

[Goods exports by destination, YoY 3mMA %]

4 4

6

7

3 45

65

19

14

20

5

78

12

8

4 3 4

5

10

12

15

5

78

12

8

3 3 35

9

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2000 2010 2018



Increase in services exports’ weight led by tourism receipts

Weight of exports of services doubled since 2005 Greater diversity of countries of origin in tourism

[% GDP] [% of non-resident overnight stays by country of origin]

Source: Banco de Portugal Source: Statistics Portugal

15


30,9%

23,3% 23,3% 22,9% 20,8% 19,6% 18,1%

16,3%

13,9% 14,1% 13,8%14,2%

13,3% 13,6%

11,4%

13,9% 10,7% 10,4%9,3%

10,3% 9,9%

4,7%

6,9% 10,0% 10,5%9,6% 9,8%

8,9%

7,0%

7,8% 6,3% 6,4%

5,8% 5,3%5,2%

1,7%3,5% 3,8% 3,9%

5,2% 5,5%6,6%

3,0%3,7% 3,1% 3,1%

3,3% 3,4% 3,7%

2,4%2,4% 2,9% 3,1%

3,8% 4,7% 4,6%

22,5% 24,6% 25,8% 25,7% 27,6% 28,1% 29,5%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

2005 2010 2015 2016 2017 2018 Jan-Apr

UK Germany Spain France Netherlands Brazil Italy USA Others



Strong fixed investment growth despite subdued GFCF in construction

Construction explains 99% of GFCF contraction

[GFCF in construction and excluding construction, 100=2000Q1]


16


Capacity utilization levels imply stronger investment

[Capacity utilization in manufacturing and NFC GFCF as % of GDP]



Healthy acceleration of fixed investment

Increase in fixed investment despite debt reduction

[NFC debt and NFC fixed investment as % of GDP]

Source: Statistics Portugal, ECB Source: Statistics Portugal

17


…while NFC savings rate remains well above pre-crisis

[NFC savings and investment as a % of GVA]



Improved profitability and credit allocation

NFC profitability levels are being restored …

[Return on equity and Fixed investment as a % of GVA]


18


Stabilization of loans to manufacturing, trade and tourism related sectors, while construction declines

[Loans to NFC, Index 100 = Jan 2008]

Source: Banco de Portugal



Outline

19

1.







3.



Portugal

233,9%

150%

165%

180%

195%

210%

225%

240%

255%

270%

285%

300%

315%

Portugal Euro area


Improved profitability and balance sheet strengthening

20

[Net lending (+)/ Net borrowing (-) in % of GDP]

Consistent net lending positions…

[Private sector debt/GDP]

… leading to private sector deleveraging

Source: Statistics Portugal Source: ECB

Lowest since 2002Q4

-72.2 pp

-14

-12

-10

-8

-6

-4

-2

0

2

4

6

Total economy Non FinancialCorporations

Financialcorporations

Households andNPISH

2008 2009 2010 2011

2012 2013 2014 2015

2016 2017Po 2018Pe



Households’ net financial position improving

Net worth is now above pre-crisis levels … … driven by deleveraging

[EUR billion]

Source: Banco de Portugal Source: ECB

21


[Debt/GDP; Non-consolidated; Nominal values]

-184 -159

543591

-250

-100

50

200

350

500

650

800

Total financial assets Total non-financial assets

Total liabilities Total net worth



Strengthening of corporates’ capital structure

Strong decline of debt stock

[Debt/GDP; Non-consolidated]

Source: ECB Source: Banco de Portugal

22


Improved solvency position

[Capital ratio = Equity/Assets]




Deleveraging process results in declining loan stock and diminished new lendingoperations

Total loans declined sharply since 2011… …while new lending operations remain subdued

[Total loans to households and NFC, billion €] [New lending operations to households and NFC, billion €]

Source: Banco de Portugal Source: Banco de Portugal

23



150,7

135,1

122,6

111,8

102,1

96,1 95,592,5

88,9

2010 2011 2012 2013 2014 2015 2016 2017 2018


De-risking of the banks’ capital structure …

24

[Loans to Deposits Ratio, %]

More stable funding structure

[Core tier 1 | Common Equity tier 1, %]

Higher capital levels in a challenging context

Source: Banco de PortugalSource: Banco de Portugal

7,4

8,7

11,512,2

11,3

12,4

11,4

13,913,2

2010 2011 2012 2013 2014 2015 2016 2017 2018

13,4 12,3 13,3 12,3

Total Capital Ratio

12,69,810,3

(*) Since Jan-2014 is in effect a new, transitory, regime of own funds adequacy, which takes into account Basel III phase-in arrangements.

15,2 15,2



… with increased resilience of major Portuguese banks

25

• The 2nd stage of CGD’s recapitalization was concluded in Mar-17, with issuance of € 0.5bn of subordinated bonds and Statecapital injection of € 2.5bn.

CGD

• NB bought back senior bonds maturing between 2019 and2052, ensuring a capital increase of € 500mn.

• A 75% stake in NB was sold to Lone Star, resulting in animmediate capital injection of € 750 mn (and an additional €250mn by the end of 2017). The Resolution Fund retains 25%of the capital.

• In 2018, Resolution Fund injected € 790mn into NB (CCA).

Novo Banco

BCP• Capital increase of € 1.33bn finalized in Feb-2017, which

allowed the reimbursement of the remaining € 700mn of CoCos

• Following the capital increase, Fosun share reached 23.5%

BPI• The removal of the voting rights limit opened the door for a

successful public offer by CaixaBank, finalized in Feb-2017,which increased its share to over 84.5%.

2016 2017 2018

Net income -1.859,5 51,9 496

Net interestincome

1.197,3 1.241,4 1.204,8

2016 2017 2018

Net income -788,3 -2.298.0 -1.412,6

Net interestincome

529,1 403,7 454,3

2016 2017 2018

Net income 23,9 186,4 301,1

Net interestincome

1.237,8 1.391,0 1.423,6

2016 2017 2018

Net income 313,2 10,2 490,6

Net interestincome

372,2 388,1 422,6

Source: Bloomberg

Source: Bloomberg

Source: Bloomberg

Source: BPI, CGD, Novo Banco aod BCP

2. Structural transformation



Banks dealing with legacy assets

NPL ratio is receding …

[% of gross credit; at end of period]

26


… as does overdue credit ratio despite lower total loans

[Overdue credit ratio, YoY change in pp and contributions]

Source: Banco de Portugal

Prudentialsupervisory action

NPL management

Legal and judicial reform

National

authorities’

3-pillar strategy

to reduce NPLs:

[+ EU-level action]



Outline

27

1.







4.



EC

projections

EC

projections


Fiscal discipline has stabilized debt levels throughout economic and politicalcycles

28

[% of GDP]

Strong primary surplus …

[EDP gross debt, % of GDP]

… supporting public debt decline

Source: European Commission Source: European Commission

121,5

30

40

50

60

70

80

90

100

110

120

130

140

Euro area Italy Portugal Spain

3.0

-10

-8

-6

-4

-2

0

2

4

6

Euro area Italy Portugal Spain

PortugalPortugal



Stability Program projections(Apr-2019)

38%

40%

42%

44%

46%

48%

50%

52%

-12%

-10%

-8%

-6%

-4%

-2%

0%

2%

2010 2012 2014 2016 2018 2020 P 2022 P

Total revenue (RHS)

Total expenditure excl NB, Banif and CGD (RHS)

Overall balance excl NB, Banif and CGD


Source: Statistics Portugal and Ministry of Finance Source: Statistics Portugal and Ministry of Finance

29

Lowest deficits in over 40 years

Structural adjustment

[% GDP][Total revenue, total spending and overall balance; % GDP]

Significant reduction of expenditure

-11,2%

-8,9%

-7,4%

-6,1%-5,7%

-3,4%

-4,8%

-2,9%

-7,2%

-1,6%

-4,4%

-2,2%-2,0% -2,0%

-3,0%

-1,2%

-0,5%-0,1%

Overall Balance Structural Overall Balance

2010 2011 2012 2013 2014 2015 2016

2017 2018 2019 P 2020 P 2021 P 2022 P 2023 P

Note: NB, Banif and CGD impacts occur in 2014, 2015, 2017, 2018, 2019, 2020, 2021.



Fiscal consolidation through a strong improvement of the primary surplus anddeclining interest costs

General Government Accounts

[% GDP]

Source: Statistics Portugal and Ministry of Finance 30


(% GDP) 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 P 2020 P 2021 P 2022 P 2023 P

Total revenue 40,6% 42,6% 42,9% 45,1% 44,6% 43,8% 42,8% 42,7% 43,5% 43,8% 43,7% 43,9% 43,2% 43,0%

Current revenue 39,4% 41,5% 41,1% 44,0% 43,6% 43,0% 42,3% 42,3% 43,1% 43,2% 43,1% 42,9% 42,7% 42,5%

Current taxes on income and wealth 8,5% 9,5% 9,0% 11,4% 11,0% 10,9% 10,2% 10,1% 10,4% 10,2% 10,1% 10,0% 10,0% 9,9%

Taxes on production and imports 13,2% 13,9% 13,9% 13,7% 14,2% 14,5% 14,7% 14,9% 15,3% 15,3% 15,2% 15,2% 15,1% 15,0%

Social contributions 11,9% 12,0% 11,4% 12,0% 11,8% 11,6% 11,6% 11,7% 11,8% 11,9% 12,0% 12,0% 12,0% 12,0%

Other revenue 5,8% 6,2% 6,9% 6,8% 6,6% 6,1% 5,8% 5,6% 5,6% 5,8% 5,7% 5,7% 5,6% 5,6%

Capital revenue 1,3% 1,1% 1,8% 1,1% 1,0% 0,8% 0,6% 0,4% 0,4% 0,6% 0,6% 1,0% 0,5% 0,5%

Total expenditure excl CGD 51,8% 50,0% 48,5% 49,9% 51,8% 48,2% 44,8% 43,6% 44,0% 43,9% 43,4% 43,0% 42,6% 42,4%

Current expenditure 44,6% 45,6% 45,3% 46,8% 45,6% 43,9% 42,9% 41,3% 40,8% 40,7% 40,3% 39,8% 39,5% 39,3%

Social benefits 18,6% 18,9% 19,6% 20,4% 19,7% 19,3% 18,9% 18,3% 18,2% 18,3% 18,3% 18,2% 18,1% 18,0%

Compensation of employees 13,7% 12,8% 11,7% 12,5% 11,9% 11,3% 11,2% 10,9% 10,8% 10,8% 10,7% 10,6% 10,5% 10,4%

Interest (EDP) 2,9% 4,3% 4,9% 4,9% 4,9% 4,6% 4,2% 3,8% 3,5% 3,3% 3,0% 2,9% 2,7% 2,7%

Intermediate consumption 5,9% 6,0% 5,8% 5,6% 5,7% 5,6% 5,5% 5,4% 5,4% 5,4% 5,4% 5,4% 5,4% 5,4%

Subsidies 0,7% 0,7% 0,6% 0,6% 0,7% 0,6% 0,5% 0,4% 0,4% 0,4% 0,4% 0,4% 0,4% 0,4%

Other current expenditure 2,8% 2,9% 2,7% 2,7% 2,7% 2,6% 2,5% 2,3% 2,5% 2,5% 2,5% 2,5% 2,5% 2,5%

Capital expenditure excl CGD 7,2% 4,4% 3,3% 3,2% 6,2% 4,3% 1,9% 2,4% 3,2% 3,2% 3,1% 3,2% 3,1% 3,1%

Gross fixed capital formation 5,3% 3,5% 2,5% 2,2% 2,0% 2,2% 1,5% 1,8% 2,0% 2,1% 2,3% 2,5% 2,6% 2,6%

Other capital expenditure excl CGD 1,9% 0,9% 1,0% 0,9% 4,2% 1,9% 0,4% 0,5% 1,2% 1,1% 0,7% 0,6% 0,5% 0,5%

Overall balance excl CGD -11,2% -7,4% -5,7% -4,8% -7,2% -4,4% -2,0% -0,9% -0,5% -0,2% 0,3% 0,9% 0,7% 0,7%

Memo items

Primary expenditure excl CGD 48,9% 45,7% 43,6% 45,1% 46,9% 43,6% 40,6% 39,8% 40,5% 40,7% 40,3% 40,2% 39,9% 39,7%

Primary balance excl CGD -8,2% -3,1% -0,8% 0,0% -2,3% 0,2% 2,2% 2,9% 3,0% 3,1% 3,3% 3,8% 3,4% 3,4%

Overall balance -11,2% -7,4% -5,7% -4,8% -7,2% -4,4% -2,0% -3,0% -0,5% -0,2% 0,3% 0,9% 0,7% 0,7%

Primary balance -8,2% -3,1% -0,8% 0,0% -2,3% 0,2% 2,2% 0,9% 3,0% 3,1% 3,3% 3,8% 3,4% 3,4%

General Government Account (accrual basis)



Stability Program projections(Apr-2019)

101,0

114,3 116,5 118,3 118,6 117,2114,6 113,2

110,6107,1

102,898,7

94,8

10,4

11,912,5

12,3 10,1 12,0

10,28,2

8,0

8,1

6,2

4,9

4,8

111,4

126,2129,0

130,6128,8 129,2

124,8

121,5

118,6

115,2

109,0

103,7

99,6

2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023

GenGov deposits

GenGov debt net of GenGov deposits

GenGov gross debt

Public debt to decline

Public debt downward trend …

[Maastricht debt, % GDP]

31Source: Ministry of Finance

Decomposition of public debt dynamics[pp GDP]

… is supported by strong primary surpluses and decreasing interest costs


Assumptions for public debt dynamics

YEAR 2017 2018 2019 P 2020-23 P

Real growth rate (yoy%) 2.8 2.1 1.9 2.0

GDP deflator (yoy%) 1.5 1.4 1.5 1.5

Overall balance (%GDP) -3.0 -0.5 -0.2 0.6

Primary balance (%GDP) 0.9 3.0 3.1 3.5

Interest costs (%GDP) 3.8 3.5 3.3 2.8

YEAR 2017 2018 2019 P 2020-23 P

Maastricht debt (% GDP) 124.8 121.5 118.6 99.6

Change (pp GDP) -4.5 -3.3 -2.9 -19.0

Primary balance effect -0.9 -3.0 -3.1 -13.8

Snowball effect -1.6 -0.9 -0.7 -4.0

Interest costs 3.8 3.5 3.3 11.3

Nominal GDP -5.4 -4.3 -4.0 -15.3

Other stock-flow adjustments -2.0 0.6 1.0 -1.2



Outline

32

1.







5.




A significant improvement in the debt structure is a key source of resilience

33

One of the longest average maturities …

[Years]

Source: IGCP

… with a declining implicit interest rate

[%]

Source: IGCP

4,5

5,8

4,24,4

3,7

2,7 2,82,6

1,8

3,5

4,13,9

3,6 3,63,4

3,23,0

2,8

2010 2011 2012 2013 2014 2015 2016 2017 2018

Cost of issuance per year Cost of debt outstanding



2017 2018 E 2019 P 2020 P 2021 P 2022 P 2023 P

State borrowing requirements 28,3 20,6 18,1 13,5 19,1 18,1 15,3

Net financing needs 10,4 7,6 10,0 5,2 4,2 3,3 3,2

Overall deficit (a) 4,8 3,6 4,4 1,8 0,9 1,8 2,1

Net acquisitions of financial assets (b) 5,2 4,0 5,6 3,4 3,3 1,4 1,1

One-off operations (c) 0,4

MLT Redemptions 17,9 13,0 8,0 8,3 14,9 14,9 12,1

Tbonds (PGB + MTN) (d) 7,9 7,5 8,0 8,3 11,4 11,4 12,1

FRN/OTRV 3,5 3,5

EU/IMF (executed) 10,0 5,5

State financing sources 28,3 20,6 18,1 13,5 19,1 18,1 15,3

Use of deposits 0,4 0,5 0,1 0,0 3,2 1,6 0,0

Financing in the year 27,9 20,1 18,0 13,5 15,8 16,6 15,3

Executed 27,9 20,1 11,6

Tbonds (PGB + MTN) 15,1 16,4 10,8

FRN/OTRV 3,5 1,0

Retail debt (net) 2,8 1,3

Tbills (net) 0,3 -1,8 0,8

Other flows (net) (e) 6,2 3,1

To be executed 6,4 13,5 15,8 16,6 15,3

Tbonds (PGB + MTN) 4,8

FRN/OTRV 1,0

Retail debt (net) 0,4

Tbills (net) 0,0

Other flows (net) (e) 0,2

State Treasury cash position at year-end (f) 9,8 9,3 9,3 9,3 6,0 4,5 4,5

(d) Includes net impact of exchange offers.

(a) State sub-sector cash deficit in 2017-19. Projection for GG deficit (adjusted) in 2020-23 (Stability Programme, Apr 2019).(b) Includes refinancing of other public entities (namely SOEs), as well as the direct capitalization of CGD and redemption of CoCos in 2017, and (c) Includes other operations that impact net financing needs (e.g. bank recapitalization in 2012-2013, privatization revenues)

(f) Excluding cash-collateral.

(e) Includes centralization of funds of other public entities in the Single Treasury Account.

Prudent and stable funding plan

State’s borrowing needs and sources 2017-2023

[EUR billion]

34


Source: IGCPand Ministry

of Finance



Regular issuance of MLT debt through different channels and across the curve

Auctions regain the main role in the annual funding plan Supporting liquidity in different points of the curve

[MLT debt issuance per method of issuance; EUR billion] [MLT debt issuance per bucket; EUR billion]

Source: IGCP Source: IGCP

35


21%51% 100%

22%

2%

25%

41% 53%

22%

9%

35%

44%

21%

8%

15%26%

10%

7%

7%

38%

8%

25%

46%

46%

48%45%

52%

91%

7%

17%

19% 8%2%

19%

0

5

10

15

20

25

2010 2011 2012 2013 2014 2015 2016 2017 2018 Jan-Mar2019

<4[ [4-6[ [6-9[ [9-13[ >=13

12% 41%

45%

48%47%

25%

15%

37%

53%

77%

47%

20%

36%

45%

55%

47%

30%

100%

55%

9%

17%

5% 14%

10%

17%

11%

12%

23%8%

16%

17%5%

0

5

10

15

20

25

2010 2011 2012 2013 2014 2015 2016 2017 2018 Jan-Mar2019

Syndications Auctions Exchanges MTN Issuance OTRV/FRN



The diversification of investors ensures a stable base of debt holders (1/2)

Progressively regaining traditional investors

Source: IGCP

36

Distribution by Geography Distribution by Investor Type


[Distribution by geography and investor type of 10-year syndications from 2010 to 2019]

2010

2013 2019

Asia

France

Germany/Austria/Switzerland

Nordics

North America

Other

Other EU

Portugal

Spain

UK

2010

2013

2019

Asset Managers Asset Managers

Banks Banks

Official Institutions OfficialInstitutions

Hedge Funds Hedge Funds

Insurance / Pension FundsInsurance / Pension Funds

Others Others



[% of total State debt securities]


37


More diversified public debt composition

[EUR billion and % of total State debt]

Non-domestic holdings in line with EU peers

The diversification of investors ensures a stable base of debt holders (2/2)

69%69%

70% 59%48% 45% 43%

46% 47% 49%51% 53%; …

4%6%

6%6%

11%

13%

13% 7%9% 9% 7%

7%

6%6%

6%5%

15%

13%

11%7%

6% 6% 8%

9%

10%

11%12%

11%

21%32%

35%36%

32%

29%24%

21%21%

118133

152

175

194204

217226

236238 246 250

0

40

80

120

160

200

240

280

Dec/08 Dec/09 Dec/10 Dec/11 Dec/12 Dec/13 Dec/14 Dec/15 Dec/16 Dec/17 Dec/18 Mar/19

PGB Other MLT Tbills

Other ST Retail EU-IMF

Other non-tradable TOTAL

25

35

45

55

65

75

85

Portugal Spain Italy



38

Liability management operations have smoothed the redemption profile

[Redemption calendar debt; May-2019+ rollover EFSM; EUR billion]

Source: IGCP

Maturity profile spread over a long time span


(*) Exact final maturity date of each EFSM individual loan will be defined when the original loans are rolled over (IGCP

simulation in orange), but it is not expected that Portugal will have to refinance any of its EFSM loans before 2026.

IGCP is actively buying back off-the-run PGBs

The IMF loan has been fully repaid

[PGB buybacks, 2018 and 2019]

[Repurchases of IMF loan]

SecurityOutright buyback

(EUR million)Exchange

(EUR million)OT Jun 2019 778 -OT Jun 2020 - 1,036OT Apr 2021 100 870OT Oct 2023 - -341OT Apr 2027 -1,565

TOTAL 2018 878 -

Source: IGCP

Date SDR million EUR million2015 6,579 8,4482016 3,560 4,4962017 8,232 10,0132018 4,571 5,515

TOTAL 22,942 28,472

OT Jun 2020 - 702OT Apr 2021 - 1361OT Jul 2026 - -742OT Oct 2028 - -619OT Feb 2030 - -702

TOTAL 2019 - -

0

3

6

9

12

15

18

21

2019 2023 2027 2031 2035 2039 2043 2047

Tbills

EFSF

EFSM

EFSM (final maturity to be confirmed)

Other medium and long term debt



Outline

39

1.







6.




Sizable decline in funding costs and in risk premium

Portuguese yields declined sharply in all maturities… …prompting a convergence with other EA issuers

[Secondary market yields, %] [10-yr secondary market yields, %]

Source: Bloomberg Source: Bloomberg

40




ECB will continue reinvesting in full the principal payments from maturing securities aiming tomaintain the size of its cumulative net purchases under each constituent programme

ECB PGB purchases under PSPP

[EUR billion]

Source: ECB

41

-60

-30

0

30

60

90

120

-1,2

-0,6

0,0

0,6

1,2

1,8

2,4

PSPP purchases with capital key PSPP actual purchases Target APP Purchases (RHS)

Rei

nve

stm

ent

ph

ase



0

500

1.000

1.500

2.000

2.500

Jan

-15

Ap

r-1

5

Jul-

15

Oct

-15

Jan

-16

Ap

r-1

6

Jul-

16

Oct

-16

Jan

-17

Ap

r-1

7

Jul-

17

Oct

-17

Jan

-18

Ap

r-1

8

Jul-

18

Oct

-18

Jan

-19

Ap

r-1

9

Over-the-counter OT Platforms OT OT 12M Moving Average


Average daily turnover stabilized and bid-offer spreads improved significantly

Average daily turnover stabilized… … while bid-offer spreads improved significantly

[EUR million] [price ticks; 1M moving average]


42

0

20

40

60

80

100

120

140

160

Feb

/15

May

/15

Au

g/1

5

No

v/1

5

Feb

/16

May

/16

Au

g/1

6

No

v/1

6

Feb

/17

May

/17

Au

g/1

7

No

v/1

7

Feb

/18

May

/18

Au

g/1

8

No

v/1

8

Feb

/19

May

/19

10Y 5Y




Fund managers have reengaged with the PGB market since early 2017…

Net flows of end-investors by investors’ type

[EUR million; Cumulative net flows of end-investors (excl PDs) since Dec-2015]

Source: HRF Reports

43

-6.000

-4.000

-2.000

0

2.000

4.000

6.000

8.000

10.000

Dec/15 Mar/16 Jun/16 Sep/16 Dec/16 Mar/17 Jun/17 Sep/17 Dec/17 Mar/18 Jun/18 Sep/18 Dec/18 Mar/19

Banks Central Bank & Other Public Entity

Pension Fund Insurance Company

Fund Manager Hedge Fund

Retail



…as did the UK market, while other EU net flows have been positive since mid-2017

44

Net flows of end-investors by region (top 5)

[EUR million; Cumulative net flows of end-investors (excl PDs) since Dec-15] [EUR million; Cumulative net flows of end-investors (excl PDs) since Dec-15]

Net flows of end-investors by region


Source: HRF Reports

-4.000

-3.000

-2.000

-1.000

0

1.000

2.000

3.000

4.000

5.000

6.000

7.000

Spain Other EU France Portugal UK

-3.000

-2.000

-1.000

0

1.000

2.000

3.000

Germany/Austria/Swit North AmericaAsia BeneluxOther Nordics




Rating upgrades unravel a new paradigm, as Portugal reenters main benchmarkindexes

Interest rates and sovereign rating Recent and upcoming rating decisions

[%; notches above investment grade (AAA=10); inverted scale] [Announced rating calendar for 2019]

Source: European Commission, Fitch, Moody’s e S&P Source: S&P, Fitch, Moody’s and DBRS

45

DBRSBBB / Pos.

FitchBBB / Pos.

Moody’sBaa3 / Sta.

S&PBBB / Sta.

Aug-2019

9/08

Sep-2019

13/09

Oct-2019

4/10

Nov-2019

22/11



Appendix

46

A. Macroeconomic indicators

B. Structural reforms

C. Fiscal indicators



Positive medium and long-term trend in soft and hard data economic indicators,despite some recent volatility and deceleration

Coincident indicators and real GDP Retail sales and Industrial production

[yoy %] [3 month average, YoY%]

Source: Banco de Portugal, Statistics Portugal Source: Statistics Portugal

47




Both headline and core inflation in Portugal are below that of the Euro Area

HICP Core HICP

[Year-on-year growth, %] [Year-on-year growth; %]


48





Broad economic recovery

Most sectors have now closed the gap vs. Jun-2011

[Employment change vs. level in Jun-2011, thousands]


49

[GVA YoY% and pp]

… cross-cut recovery in sectoral terms

1,5%

-4%

-3%

-2%

-1%

0%

1%

2%

3%

Jun

/08

De

c/0

8

Jun

/09

De

c/0

9

Jun

/10

De

c/1

0

Jun

/11

De

c/1

1

Jun

/12

De

c/1

2

Jun

/13

De

c/1

3

Jun

/14

De

c/1

4

Jun

/15

De

c/1

5

Jun

/16

De

c/1

6

Jun

/17

De

c/1

7

Jun

/18

De

c/1

8

Manufacturing Wholesale and retail trade

Construction Other sectors

GVA

83

,6

81

,4

61

,5

58

,6

48

,6

38

,4

30

,2

28

,7

28

,1

25

,4

22

,7

20

,5

18

,5

10

,9

8,6

-2,6

-3,6

-3,9

-21

,8

-139

,6

-227

,9

(Net

) to

tal

Hea

lth

& s

oci

al w

ork

Man

ufa

ctu

rin

g

Edu

cati

on

Info

rmat

ion

& c

om

mu

nic

atio

n

Co

nsu

ltan

cy, s

cien

tifi

c &

te

chn

ical

act

ivit

ies

Pu

blic

ad

min

istr

atio

n a

nd

def

ence

Ad

min

istr

ativ

e &

su

pp

ort

ser

vice

Tran

spo

rts

& s

tora

ge

Acc

om

mo

dat

ion

& f

oo

d s

ervi

ce

Rea

l est

ate

Oth

er s

ervi

ces

Art

s, e

nte

rtai

nm

ent,

sp

ort

s &

re

crea

tio

n

Wat

er c

olle

ctio

n, t

reat

men

t an

d d

istr

ibu

tio

n; s

ewer

age,

…

Wh

ole

sale

& r

etai

l tra

de

Fin

anci

al a

nd

insu

ran

ce a

ctiv

itie

s

Min

ing

and

qu

arry

ing

Elec

tric

ity,

gas

, ste

am, w

ater

an

d c

old

air

Act

ivit

ies

of

ho

use

ho

lds

as e

mp

loye

rs

Co

nst

ruct

ion

Agr

icu

ltu

re, f

arm

ing

of

anim

als,

hu

nti

ng

and

fo

rest

ry



100%-10,7%

-8,0%

-7,7%

-7,4%

-5,4%

-4,2%-4,2%

-3,6%-2,2%

-1,6% -1,1% 44%

Dec

-08

Man

ufa

ctu

rin

g, M

inin

g an

d q

uar

ryin

g

Elec

tric

ity,

gas

, wat

er

Wh

ole

sale

an

d r

etai

l tra

de

, re

pai

r o

fve

hic

les

Tech

nic

al, c

on

sult

ancy

an

d o

ther

act

ivit

ies

Tran

spo

rtat

ion

an

d s

tora

ge

Co

nst

ruct

ion

Rea

l est

ate

Acc

om

mo

dat

ion

, Fo

od

an

d b

eve

rage

Edu

cati

on

, he

alth

an

d o

the

r se

rvic

es

Info

rmat

ion

an

d c

om

mu

nic

atio

n

Agr

icu

ltu

re, f

ore

stry

an

d f

ish

ing

Dec

-12

44% -1,0% -0,4% -0,2%

65%

0,8% 1,2% 1,5% 1,9%2,5%

3,8%

5,5%

5,5%

Dec

-12

Elec

tric

ity,

gas

, wat

er

Co

nst

ruct

ion

Info

rmat

ion

an

d c

om

mu

nic

atio

n

Edu

cati

on

, he

alth

an

d o

the

r se

rvic

es

Agr

icu

ltu

re, f

ore

stry

an

d f

ish

ing

Tran

spo

rtat

ion

an

d s

tora

ge

Acc

om

mo

dat

ion

, Fo

od

an

d b

eve

rage

Rea

l est

ate

Wh

ole

sale

an

d r

etai

l tra

de

, re

pai

r o

f ve

hic

les

Man

ufa

ctu

rin

g, M

inin

g an

d q

uar

ryin

g

Tech

nic

al, c

on

sult

ancy

an

d o

ther

act

ivit

ies

Dec

-16

Fixed investment bounced back in almost all sectors, after a widespreadcontraction between 2008-2012

NFC investment declined sharply until 2012… … and has shown signs of broad recovery ever since

[GFCF; current prices; 100=2008] [GFCF; current prices; 100=2008]

Source: Statistics Portugal 50




Revamp in real estate based on a less debt-driven demand

Prices reflect the increase in demand Market is starting to show some overvaluation in PT

[Current prices; 100=2015; M€] [Average valuation of residential property vs. equilibrium]

Source: ECB51



-16

-14

-12

-10

-8

-6

-4

-2

0

2

4

6

8

10

12

14

Portugal Euro area

Un

de

rval

ue

dO

verv

alu

ed




Improving net external debt position

Reversed historical net borrower position … … leading to improvement in NIIP

[Current account, % GDP: 4QMA] [Net International Investment Position, % GDP]

52




Well diversified exports distribution, with limited sectoral or geographicalconcentration

Portuguese goods exports by major destination and sector

[% total exports by destination and sector; YTD 2018]


53


Others WORLD

Elec. and Mec. Machinery 1,91 1,50 3,38 1,26 0,52 0,39 0,29 0,65 0,29 0,12 4,01 14,3

Vehicles and parts, Aircraft 3,24 2,64 2,41 1,19 0,21 0,93 0,26 0,06 0,29 0,24 2,69 14,2

Textile Products 2,92 1,14 0,77 0,69 0,56 0,57 0,38 0,06 0,18 0,02 1,86 9,2

Mineral products 2,15 0,17 0,06 0,08 1,29 0,09 0,48 0,04 0,22 0,09 3,67 8,3

Base Metals 2,87 1,33 0,60 0,53 0,28 0,09 0,17 0,24 0,16 0,05 1,64 7,9

Plastics and Rubber 2,23 0,88 0,91 0,38 0,25 0,29 0,43 0,16 0,22 0,05 1,52 7,3

Prep. Food, Beverages and

Tobaco1,59 0,64 0,18 0,39 0,21 0,50 0,14 0,29 0,15 0,12 1,44 5,6

Chemicals (incl. Pharma.) 1,07 0,32 0,52 0,37 0,29 0,14 0,21 0,31 0,28 0,03 1,40 4,9

Pulp of Wood and Paper 1,07 0,47 0,47 0,23 0,19 0,24 0,30 0,09 0,06 0,02 1,48 4,6

Footware 0,34 0,73 0,63 0,22 0,13 0,10 0,47 0,03 0,08 0,00 0,75 3,5

Others 5,95 2,86 1,54 1,01 1,04 0,94 0,68 0,69 0,34 0,66 4,34 20,0

TOTAL 25,3 12,7 11,5 6,3 5,0 4,3 3,8 2,6 2,3 1,4 24,8 100



Exports growth based on geographical and sectoral contributors

Major sector and country contributions

[YoY % and contributions, YTD 2018]


54


Spain Italy France Germany United States NetherlandsUnited Kingdom Brazil Angola Others WORLD

Vehicles and parts, AircraftV

e0,52% 0,57% 0,66% 0,39% 0,05% 0,12% 0,18% -0,11% 0,00% 0,58% 2,94%

Optical / medical / precision

instr.

O

p0,03% 0,00% 0,00% 0,27% 0,03% 0,01% -0,01% 0,00% -0,01% 0,20% 0,54%

Base MetalsB

a0,32% 0,00% 0,16% 0,05% -0,06% 0,00% 0,03% 0,01% -0,02% 0,02% 0,50%

Mineral productsM

i0,36% -0,10% -0,10% 0,01% 0,10% -0,12% -0,03% -0,16% -0,01% 0,26% 0,20%

Textile ProductsT

e-0,13% 0,15% 0,01% -0,01% 0,01% 0,04% -0,03% -0,01% -0,02% 0,14% 0,18%

Prep. Food, Beverages and

Tobaco

P

r0,03% 0,25% -0,08% 0,01% 0,00% -0,04% -0,02% 0,02% -0,05% 0,04% 0,16%

Plastics and RubberP

l0,06% 0,05% 0,01% 0,01% -0,02% -0,01% 0,00% 0,02% -0,04% 0,06% 0,14%

Vegetable ProductsV

e0,12% 0,01% -0,02% 0,01% 0,00% 0,03% 0,02% -0,02% -0,02% 0,04% 0,17%

Animal ProductsL

i0,04% -0,02% 0,01% 0,00% 0,00% 0,00% 0,00% 0,01% -0,03% 0,05% 0,05%

Manufactured ProductsM

i-0,05% 0,01% 0,04% 0,03% -0,02% -0,01% 0,00% 0,00% -0,05% 0,04% -0,01%

FootwareF

o0,01% 0,00% -0,03% -0,04% 0,00% -0,02% 0,00% 0,00% -0,01% 0,00% -0,09%

Others 0,20% 0,04% 0,15% -0,01% -0,04% 0,01% -0,08% -0,01% -0,24% 0,45% 0,49%

TOTAL Total 1,50% 0,96% 0,83% 0,71% 0,06% 0,00% 0,05% -0,24% -0,50% 1,89% 5,26%



Productivity gains leading to higher competitiveness

Labor productivity: positive medium-term trend ULC: down from a relatively modest competitive position

[2001 = 100] [2001 Q1 = 100; 12m MA]


55




Appendix

56


B. Structural indicators




Structural reforms key to sustain a balanced growth environment

57

What has been achieved: Underway:


• Improved efficiency of credit allocation by banks

• Resolution Fund: State loan extended for up to 30y, with maturity contingent on final outstanding amount (after NB sale)

Financial sector

• Social Security reform

• Improved effectiveness: reduction of civil servants (-10% since 2011) and SOEs restructuring

• Simplified tax compliance + reduced fraud and fiscal evasion

• New Budgetary Framework Law

• Privatization program

• Judicial system reform

Public sector

• Reduced firms’ administrative burden (e.g. licensing)

• Lower costs of context (e.g. communications, railways, ports)

• Rental market reform

Product market

• Reduced severance payments and unemployment benefits

• More flexible working arrangements

Labor market

• Program Capitalizar: promote reduction of indebtedness levels and increase capital holdings

• Initiative Indústria 4.0: designed to revitalize most traditional sectors (agroindustry, auto, fashion, retail and tourism)

• Program Semente: new fiscal framework to promote Start Up investment

Corporate sector

• Program Simplex+: improve efficient use of public resourcesand simplify administrative burden

• Spending review focused on: (i) health and education sectors; (ii) procurement; (iii) real estate; and (iv) SOEs

• Automatic income declaration for Personal Income Tax

Public sector

• NPLs: working group preparing measures to facilitate debt restructuring, including fiscal treatment of write-offs

• Improve efficiency of insolvency and debt restructuring frameworks

Financial sector




Labor market reforms

58

(1) Unemployment benefit has been extended to certain self employed categories (+80% of wage needs to come from one employer )

Unemployment Benefits

Capped at:

26 months (38 months before)

2.5x IAS (3xIAS before) with 10% reduction after 6 months

Min. contribution period 12 months (15 before)

Extension to self employed (1)

Reduce risk of long term unemployment

Encourage earlier return to labor market

Reduce contribution period that gives access unemployment

insurance

Severance Payment

12 days/year for new contracts;

18 days/year (old contracts first 3 years)

(30/36 days before)

Cap: 12 months

Improve efficiency and eliminate labor market duality

Working time Arrangements

Introduction of individual bank of hours, capped at 150 hours (vs. 200

before);

Collective bank of hours

Vacations up to 22 (vs 25 days )

Increase flexibility in production cycle;

Improve productivity;

Improve production capacity adjustment to peak periods

without increasing personnel costs




Hiring and firing is now easier and less costly

Source: World Economic Forum Source: World Economic Forum

59

Hiring and firing practices

[Index scale from 1 to7 (best)]

Redundancy costs[Cost of advance notice requirements, severance payments, and penalties due when terminating a redundant worker, expressed in weekly wages]

1

2

3

4

5

ITA FRA IRL GRC PRT GER ESP

2018 2008

0

10

20

30

40

50

60

70

80

90

100

ITA FRA IRL GRC PRT GER ESP

2018 2008



Appendix

60


B. Structural reforms




The overall balance of the GG on a cash basis stood at EUR -2,083 million in2018, improving by EUR 475 million vis-à-vis 2017

General Government (GG) balance

[EUR million; yoy change]

61




2018 budget execution (on cash basis)

General Government total revenue on cash basis General Government total expenditure on cash basis

[%, pp] [%, pp]

Source: Ministry of Finance

62Execution in 2018 2018 Budget target


Main contributions(p.p.) Main contributions (p.p.)



Between Jan-May, the overall balance of the GG on a cash basis stood at EUR-637 million, improving by EUR 1,573 million vis-à-vis the same period last year

General Government (GG) balance

[EUR million; yoy change]

63





2019 budget execution: January to May

General Government total revenue on cash basis General Government total expenditure on cash basis

[%, pp] [%, pp]


64Execution in 2019 2019 Budget target


Main contributions(p.p.) Main contributions (p.p.)



5.5%

The number of civil servants declined by about 6% since Dec-11, putting a lid oncurrent expenditure

Number of civil servants[thousands]

Source: DGAEP

65


164 158 154 149 147 147 149 157 158

13 12 12 11 10 10 10 11 11

551530 510 497

503

507 510 516 521

728700

675656 659 664 669 684 690

Regional and Local Government Social Security Fund Central Government General Government




Average implicit interest rate anchored in historically low level, given therelatively long average maturity

Average maturity around 8 yearsDeclining implicit interest rate on State direct debt

[State direct debt after swaps; May-2019][%; Interest costs in t / Average debt stock at the end of t-1 and t]

Source: IGCP

Source: IGCP

66

EntityAmount

disbursed (EUR bn)

Estimated all in cost

Final average maturity from disbursement date (years)

EFSM 24.1 2.6% 19.5

EFSF 26.0 1.7% 20.8

Average cost of EU loans[Estimates; May-2019]

Outstanding (EUR bn)

Current average residual maturity

(years)

Final average residual maturity

(years)

EU 51.6 11.1 13.1

Other debt 199.9 6.3 6.3

Total 251.5 7.3 7.7

2017 2018 2019 P 2020 P 2021 P 2022 P 2023 P

PGB 3.9% 3.5% 3.3% 2.9% 2.8% 2.9% 2.9%

Tbills -0.1% -0.3% -0.3% -0.2% 0.1% 0.3% 0.6%

Retail debt 2.8% 2.9% 2.7% 2.6% 2.5% 2.2% 2.3%

EU/IMF 2.5% 2.3% 2.2% 2.4% 2.2% 1.8% 1.7%

Total 3.0% 2.8% 2.7% 2.5% 2.4% 2.4% 2.4%

Source: IGCP



Web site: www.igcp.ptBloomberg pages: IGCPReuters pages: IGCP01

67

Disclaimer

The information and opinions contained in this presentation have been compiled or arrived at from sources believed to be reliable and ingood faith, but no representation or warranty, express or implied, is made as to their accuracy, completeness or correctness.

All opinions and estimates contained in this document are published for the assistance of recipients, but are not to be relied upon asauthoritative or taken in substitution for the exercise of judgment by a recipient and, therefore, do not form the basis of any contract orcommitment whatsoever.

IGCP does not accept any liability whatsoever for any direct or consequential loss arising from any use of this document or its contents.



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