The International Monetary Fund (IMF) warned Portugal on Thursday against excessive austerity policies and counselled reforms to improve productivity, dpa reported. If there were only budget cuts, "the economy will not survive," said Abebe Selassie, who headed a recent IMF delegation to Lisbon. The IMF is part of the "troika" with the European Union and European Central Bank, which assesses Portugal's performance under its 78-billion-euro (100-billion-dollar) bailout programme. The troika, which wrapped up its fifth visit on Tuesday, recommended relaxing Portugal's budget deficit targets. Lisbon would be allowed a deficit of 5 per cent of gross domestic product this year and 4.5 per cent in 2013 - up from the previously agreed 4.5 per cent and 3 per cent. Portugal would then need to reach 2.5 per cent in 2014, if the recommendation is approved by eurozone finance ministers and the IMF board. The targets were loosened in order to avoid "excessive tension" in the economy, Selassie said in an interview with the daily Publico. He denied that the troika had pressured Portugal into lowering employers' and raising workers' social security contributions, though he described the measure as "reasonable." The measure, which is equivalent to a wage cut for employees, came under widespread criticism in Portugal after it was announced last week. "Solving the problem of competitivity simply by reducing salaries will not bring results," Selassie said. In addition to cutting spending, "it is imperative that we also have reforms that improve productivity," the IMF representative said. Portugal has been one of the most obedient pupils of the EU and IMF, which granted it a bailout of 78 billion euros in 2011. Lisbon has cut spending even more than the two institutions asked it to do. The austerity policies, combined with a recession and an unemployment rate of more than 15 per cent, have plunged growing numbers of Portuguese into poverty.
