Productivity and competitiveness of Portugal

Since the financial crisis, Portugal has seen stagnation in productivity but also found a clear decline in its competitiveness. Therefore, the country is on the path of economic adjustment in order to stimulate growth and to correct an excessive reliance on debt. The authorities should therefore seek to meet the objectives of nominal deficit of the EU- IMF program. Particular attention should be paid to the conditions for financing small and medium enterprises, in particular, by encouraging them to pay more per share and less debt, and redirecting EU funds. It is paramount that are implemented structural reforms to strengthen the background potential growth and transfer of economic activity sectors with low productivity focused on the domestic market to the export sectors of goods and services. Strong labor market reforms would help reduce the dualism and gains in competitiveness.

Structural fiscal reforms are needed to restore the sustainability of public finances. The persistence of high risk premiums on bonds that the authorities still have obstacles to regain full market access during the period covered by the program. Structural measures are needed to address the problems of longstanding excessive spending growth and the opaque important commitments relating to arrears accumulation, losses of public enterprises and public-private partnerships. The country should take measures to implement a medium-term budgetary framework, to adopt better financial management tools, to create a fiscal council and increase the transparency of fiscal accounts. In addition, the budgetary framework would be significantly enhanced by the introduction of a clear rule to apply to the government under the new European fiscal framework expenses. The evolution of the finances of local and regional government was marked by significant negative periods, so their budgetary frameworks should be reformed. A wide range of structural reforms is needed to enhance productivity and increase the share of international trade in the economy. 

Although the liberalization of Portuguese authorities is enshrined in law, many markets remain concentrated because of the existence of significant barriers to entry, so that hinder competition and innovation. Simplified procedures for issuing business licenses favor the new entrants in the market, increase competition and enhance employment. 

The Portugal international trade is limited, given the relatively small size of its economy, which suggests that the gains could be derived from increased participation in international trade. It is important that the government should continue its efforts to improve the business environment, particularly in the markets affected by privatization, and reduce incentives to create distortions that divert investment in the export sector. These efforts should help to attract foreign direct investment. The educational level of the workforce remains well below the EU average and has yet to improve, despite the significant progress made ​​by the younger generation, so that companies can develop in areas of activity over high productivity.

Further reforms of the labor market are necessary. The institutional framework has affected employment and resulted in a labor market with two speeds, which hinders the growth of productivity, as workers on short-term contracts are less likely to invest in human capital and the permanent workers are not mobile enough. Efforts to reduce this dualism in the right direction and major reforms have recently been introduced, including the reduction of redundancy, following an agreement with the social partners. Nevertheless, the dominant firms require other conditions of pay and working through the administrative extension of collective agreements, which weakens competition, reducing the entry of new players in the relevant markets and thus night competitiveness.

Finally, a reduction of the costs of non-wage labor for low wages could help to improve the employment prospects of low-skilled individuals.

Seb Rizzi 

[artigo de opinião produzido no âmbito da unidade curricular “Economia Portuguesa e Europeia” do 3º ano do curso de Economia (1º ciclo) da EEG/UMinho]