The IMF’s assessment highlights what many of us already know—Portugal has made an impressive recovery since the pandemic. Our growth in 2023 surpassed the euro area average, largely due to strong private consumption, exports, and smart use of EU funds. Unemployment is low, inflation is falling, and public debt has dropped by an astounding 36 percentage points since 2020. These are all reasons to feel proud of what we’ve accomplished.

However, this moment of success is also a time for reflection. While we’re moving in the right direction, the IMF rightly points out a few underlying challenges that could hold us back in the long run if we don’t address them soon.

One of the key issues is our low productivity growth. Despite strong economic momentum, our productivity levels remain stubbornly low compared to other advanced economies. This is a structural problem that needs to be tackled with reforms, particularly in how we approach the labor market, education, and business regulation.

Another area where we need to improve is investment. While we’ve seen growth, it hasn’t been as robust as we need for sustainable long-term development. We can’t rely on short-term boosts forever—we need more investment, especially in sectors that will drive future growth, like technology, green energy, and digitalization. The IMF highlighted this, and I think it’s something we, as a country, need to focus on.

The aging population is another challenge that looms large over our economic future. With fewer people entering the workforce and more people retiring, this demographic shift will put increasing pressure on public services and pension systems. While this isn’t unique to Portugal, we need to start preparing now to mitigate the impact in the years to come.

This ties back to productivity. If we can create a more flexible, modern labor market, we can better manage this demographic change by keeping older workers engaged while also creating opportunities for younger generations.

The IMF also praised Portugal’s fiscal management, and rightly so achieving a fiscal surplus and reducing public debt so dramatically since 2020 is no small feat. However, we can’t rest on our laurels. The IMF’s advice to maintain small fiscal surpluses in the short and medium term is sound, and we should continue to be cautious about new spending and tax cuts. Any expansionary fiscal policies should be balanced with measures that create fiscal space for more public investment.

The good news is that our strong fiscal position gives us the opportunity to direct more resources toward the areas that matter, like public investment in infrastructure, education, and green technology. But we need to make sure we’re spending wisely, and that means improving public sector efficiency.

Our financial sector has recovered well, but there are still risks, particularly in the real estate market. As housing prices continue to rise, the IMF rightly suggests that we remain vigilant and ready to act if needed. We’ve already introduced some macroprudential tools, but we may need to consider more, especially as high interest rates begin to affect borrowers’ ability to repay loans.

The IMF also emphasized the importance of our green transition. Portugal has set ambitious goals, and rightly so. Our future lies in clean energy, sustainability, and the digital economy. We’ve made good progress, but we can do more. The green transition isn’t just about reducing emissions—it’s also about creating new economic opportunities, boosting productivity, and positioning Portugal as a leader in the next wave of global innovation.

In addition to green policies, we need to accelerate our digital transformation. This will not only help businesses become more competitive but also improve public services and create a more dynamic economy overall.

As I reflect on the IMF’s findings, I feel both pride in what we’ve achieved and a sense of urgency about what comes next. Portugal’s economic recovery is a success story, but it’s not the end of the journey. We can build on this momentum, but we need to address our long-standing challenges: productivity, investment, aging demographics, and the need for greater fiscal discipline and financial stability.

If we can stay the course, make the right investments, and continue with reforms, there’s no reason why Portugal can’t continue to thrive and secure a bright, sustainable future. Let’s celebrate how far we’ve come, but let’s also get to work on where we need to go next.

Author

Paulo Lopes is a multi-talent Portuguese citizen who made his Master of Economics in Switzerland and studied law at Lusófona in Lisbon - CEO of Casaiberia in Lisbon and Algarve.

Paulo Lopes