Portugal achieves medium overall compliance with international standards and codes, with a score of 59.2 out of 100 in our Standards Compliance Index. As a Euro-member country, Portugal's compliance in the area of macroeconomic fundamentals and financial supervision is high. However, its performance in the area of market infrastructure is mixed. Its anti-money laundering regime is generally comprehensive and effective, and its payment systems are broadly compliant with international regulations. However, despite some positive regulations dealing with corporate governance, there is not enough information publicly available on Portugal's compliance with the Principles set forth by the Organization for Economic Cooperation and Development. Some steps have been taken to align Portugal's accounting practices with the International Financial Reporting Standards, but there is no information available concerning Portugal's adherence to international auditing standards. Although there have been no significant regulatory changes in the past 24 months, there is evidence of ongoing reform in several standards.

Macroeconomic Policy and Data Transparency

Portugal subscribed to the International Monetary Fund's (IMF) Special Data Dissemination Standard (SDDS) in 1997 and met SDDS specifications in 2000. According to the IMF 2005 Article IV Consultation Report, data provision to the IMF is adequate for surveillance purposes. Portugal and the relevant metadata have been posted on the Dissemination Standards Bulletin Board. However, considerable statistical weaknesses continue to hamper an assessment of economic developments, despite some recent improvements. More »

Monetary policy in the Euro Area is determined by the Governing Council of the European Central Bank and therefore the national central banks are no longer directly responsible for monetary policy issues. According to the International Monetary Fund (IMF)'s Report on the Observance of Standards and Codes (ROSC), overall, the Euro-system maintains a high level of transparency, demonstrating a strong institutional commitment to openness and a high degree of observance of the Code. The European Central Bank has taken a very active approach to communicating with the public. Some gaps remain in the transparency framework of the European Central Bank / Euro-system, partly due to the disclosure practices of individual National Central Banks. More »

According to the Report on the Observance of Standards and Codes (ROSC) on Fiscal Transparency, conducted by the International Monetary Fund in 2003,Portugal meets the requirements of the fiscal transparency code in several areas and has been making significant progress in strengthening fiscal management and transparency. The allocation of responsibilities between different levels of government is clearly defined. New budget framework legislation has set the legal basis for ensuring improved consistency of budgeting policies, accounting and reporting requirements at all levels of the government. Nevertheless, there remain significant areas of weakness in fiscal management and transparency. In the view of the International Monetary Fund staff, these will require further corrective efforts on the part of the Portuguese policymakers. Further improvements are needed with respect to integrating a medium-term framework to budget preparation as well as better quality budget projections and analysis of fiscal risks. Additional strengthening is needed in terms of the systems of internal and external control and the budget execution, reporting, and accounting processes. More »

Institutional and market infrastructure

According to the Expert Group commissioned by the European Commission in 2003 to deliver a "Best Project on Restructuring, Bankruptcy and a Fresh Start," Portugal, as of 2002, had fully adopted 12, almost fully adopted 26, and partially adopted 3 of the World Bank's Principles and Guidelines for Effective Insolvency and Creditor Rights Systems. In March 2004, the new Code of Insolvency and Recovery of Undertakings was approved and was significantly amended in August 2004. According to PricewaterhouseCoopers, the Insolvency Code focuses exclusively on the rights of creditors, providing for the satisfaction of their claims through liquidation of the debtor's assets. The main objective of the Code is no longer to balance creditors' rights with the possibility of rescuing an insolvent company, but rather to provide swift and workable solutions that protect the rights of creditors. Accordingly, the Code obliges insolvent debtors to file for insolvency under certain circumstances and within a strict timeframe. Breach of this duty attracts severe consequences, such as the company's insolvency status being regarded as intentional. However, despite the efforts to improve protection of creditors' rights, creditors will likely still face problems arising from the lack of security and the insufficiency of assets to satisfy their claims. This notwithstanding, further major changes to the legislation are not expected in the immediate future. More »

As a result of a European Commission (EC) Regulation No 1606/2002, all European Union listed companies are required from 1 January 2005 to prepare consolidated accounts following the International Financial Reporting Standards (IFRSs) endorsed by the EC. Member States may decide as well to extend this permission or this requirement to other companies as regards the preparation of their consolidated accounts and/or their annual accounts. According to the Law-Decree 35/2005 of February 17, 2005, IFRSs will be permitted in annual accounts for listed companies, except for banks and financial institutions, and for companies within the scope of consolidation of an entity who applies IFRSs. IFRSs will be required in the consolidated accounts of banks and financial institutions starting 2006 and will be permitted in the consolidated accounts of all other companies. Other entities are required to apply the Portuguese Accounting Plan (POC), which differs from IFRSs. More »

Portugal's Commercial Companies Code of 1986 enacts European company law directives into Portuguese law and establishes important principles of corporate governance. The Securities Market Commission (CMVM), with the intent of complementing this framework, approved a package of recommendations called Recommendations of the CMVM on the Governance of Listed Companies. The recommendations pertained to the rules of conduct to be observed in the direction and control of listed companies. They were accompanied by a previous recommendation that compliance - to whatever degree of completeness - should be reported in detail. In December 2001, CMVM Regulation 7/2001 required listed companies to report annually on various governance aspects. In light of subsequent developments in this area - and particularly those resulting from the approval of the European Commission's recommendation on the independence of auditors, and the European Commission's action plan on company law - Regulation 7/2001 was amended on December 2, 2003 by Regulation 11/2003. The amendment made companies' annual reports on corporate governance more comprehensive, thereby enabling the CMVM to assess the extent of compliance with its recommendations. However, there is not enough publicly available information to assign an overall level of compliance on Portugal's compliance with the Organization for Economic Co-operation and Development (OECD)'s Principles of Corporate Governance. More »

By law, the Portuguese Institute of Public Accountants (Ordem dos Revisores Oficiais de Contas - OROC) has the power to develop auditing standards which are mandatory for statutory auditors. The focus of the OROC has been to produce standards not covered by the International Standards on Auditing (ISAs) and to translate the ISAs. On the first authority level are the Directrizes de Revisão/Auditoria (Audit standards) and the Interpretações Técnicas (Technical Interpretations) which form the auditing framework. ISAs constitute the second authority level. No further information as to Portugal's compliance with the ISAs is publicly available. More »

Based on the findings of the Financial Action Task Force's (FATF) 2006 Third Mutual Evaluation on Anti-Money Laundering and Combating the Financing of Terrorism (AML/CFT), the Portuguese legal framework for combating money laundering and terrorist financing is generally comprehensive. The money laundering (ML) offence is broad in scope and in accordance with the United Nations, Vienna, and Palermo Conventions. The terrorist financing (TF) offences are broadly satisfactory, although they do not appear to cover autonomously acts of the financing of an individual terrorist (that is not related to a terrorist group). The Portuguese confiscation and seizing system is also generally comprehensive. The system for freezing terrorist related funds has some deficiencies relating to its scope and certain limitations on the length of time during which terrorist funds may be frozen (that is, for the duration of the Portuguese judicial proceedings). Portugal has a generally clear and complete framework for providing international co-operation. The Portuguese financial intelligence unit (FIU) has been an active member of the Egmont Group since 1999. The Portuguese AML system requires obligated parties to report suspicious transactions to the Attorney General's office, which then immediately forwards the reports to the FIU. The FIU thus receives Suspicious Transaction Reports (STRs) and Currency Transaction Reports (CTRs) indirectly, and it uses both types of reports for developing cases that are forwarded to the public prosecutor for action against money laundering. The FIU is generally effective in its functions. Portuguese national authorities have adequate legal powers for gathering evidence and compelling the production of documents, as well as a broad range of special investigative techniques. Statistics on prosecutions for money laundering and terrorist financing, as well as related confiscation data are maintained by Portuguese authorities; however, according to the FATF report they are not comprehensive in all areas and thus it is difficult to assess fully the effectiveness of these regimes. More »

Large value interbank payments are processed through the Portuguese real-time gross settlement (RTGS) system, named PSPGT (Portugal's Large-Value Payment System), which went into operation in 1996. The PSPGT is Portugal's systemically important payment system. A 2004 European Central Bank assessment of all domestic Trans-European Automated Real-time Gross Settlement Express Transfer System (TARGET) components of which PSPGT is one, concluded that Portugal fully observed eight out of the ten core principles for systemically important payment systems and broadly observed two. More »

Financial Regulation and Supervision

According to the International Monetary Fund's (IMF) 2006 Financial System Stability Assessment (FSSA), banking supervision and regulatory framework in Portugal are modern and sound, and highly compliant with the Basel Core Principles for Effective Banking Supervision. The supervision of Portuguese financial institutions by the Banco de Portugal (BdP) is active, professional, and well organized. The BdP enjoys a high degree of independence from government institutions or other forms of political influence. Portugal's framework of laws and financial sector oversight practices is in line with international standards and European Union (EU) Directives. The law provides a comprehensive and flexible framework to deal with financial institutions in distress and the overall financial safety net is adequate, albeit so far untested. Portugal's banking system compares well with other EU countries in terms of efficiency, profitability, and asset quality, with solvency also close to European levels, despite a difficult operating environment. Banks' risk management processes appear adequate and are being further upgraded in the transition to Basel II. The IMF observes that some technical refinements in a few areas could further enhance banking supervision, inter alia: (1) credit and financial institutions should further strengthen their systems to accurately measure, monitor, and adequately control market risks; (2) the BdP should step up its expertise and operational capability in this area; and (3) the BdP should enhance risk-oriented supervision by fully implementing the recently established risk rating system. More »

According to the International Monetary Fund's (IMF) 2006 Financial System Stability Assessment (FSSA), the Portuguese securities regulatory framework exhibits high levels of compliance with the International Organization of Securities Commissions (IOSCO) principles. Overall, Portugal's financial system is sound, well managed and competitive, with shorter-term risks and vulnerabilities quite well contained for now, and with the system buttressed by a strong financial policy framework. The supervision of Portuguese financial institutions is active, professional and well organized, comparing very well with international standards. Nevertheless, the risks and challenges for the financial system may increase over time, especially if the economic environment remains difficult. Preconditions necessary for the effective regulation of securities markets generally appear to be in place in Portugal. The risks of direct contagion and spillover amongst Portuguese financial institutions appear quite low, given the relatively limited interlinkages between them. The crisis management framework is comprehensive and well developed, although a few improvements might be beneficial. The Bank of Portugal (Banco de Portugal - BdP) has established specific procedures to deal with crises of a systemic nature, however, coordination mechanisms amongst different institutions could be further formalized. The financial sector would benefit from speedier disposition of judicial proceedings, mainly those related to the execution of guarantees, insolvency and criminal offenses related to securities matters. The tax system appears to be complex, with different tax treatments for different sources of income, and it might be affecting the competitiveness of certain segments of the Portuguese securities market vis-à-vis other EU countries. Remaining areas for improvement include more formally safeguarding and enhancing the financial autonomy of the securities supervisors. The Securities Market Commission (Comissão do Mercado de Valores Mobiliários - CMVM) should also persist in its recent efforts to implement a more vigorous enforcement policy. More »

According to the International Monetary Fund's (IMF) 2006 Financial System Stability Assessment (FSSA), the level of observance of the Insurance Core Principles (ICPs) in Portugal is high and several planned measures and legal changes, not yet fully implemented at the time of the assessment, will likely address most of the remaining issues. Supervision of the insurance sector is active, well organized, and highly compliant with international standards. Prudential supervision of insurance institutions is entrusted to the Portuguese Insurance Institute (Instituto de Seguros de Portugal - ISP) which is very professional. Further, good conditions for effective supervision are in place. The IMF noted that a few aspects of the insurance supervision could, however, be improved. The financial autonomy of the ISP should be more formally enhanced. The ISP should shed its management functions of the Motor Third Party guarantee and worker compensation funds to other organizations. The insurance supervision framework should be further enhanced by better determining fit and proper criteria for external auditors and senior management; strengthening corporate governance arrangements; and establishing rules or guidelines on market conduct, particularly regarding fraud. More »

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Credit Ratings

Moody's Aa2/Stable

Fitch AA/Stable

Standard & Poor's AA-/Stable

Macroeconomic Data

2007 GDP (Current Prices): 223.3 billion USD (IMF)

2007 GDP (Per Capita): 21,019 USD (IMF)

2008 GDP (Growth Forecast): 1.3% (IMF)

2008 Inflation (CPI): 2.4% (IMF)

2007 Unemployment: 8% (CIA)

2006 Foreign Direct Investment

FDI (Inward): 7.4 billion USD (UNCTAD)

FDI (Outward): 3.5 billion USD (UNCTAD)

2006 Official Development Assistance

ODA (Received): N/A million USD (OECD)

ODA (Disbursed): 396 million USD (OECD)