Portugal backtracks on early IMF loan repayment

Portugal’s Socialist government said Saturday it will not make early payments of 6.6 billion euros in IMF loans this year in order to maintain financial reserves.

“The early paybacks of the IMF loan will depend on market conditions and financing needs, including raising the capital” of the publicly owned Caixa Geral de Depositos bank, the finance ministry said in a statement.

It wanted to keep reserves “adapted to market conditions” of 6.5 billion euros ($7.2 billion) at the year end, the statement said.

Portugal paid back 2 billion euros to the International Monetary Fund in February and, in April, Lisbon said it would aim to pay back 6.6 billion euros by December.

This figure was downgraded to 4 billion euros in September after a deal was inked the previous month with the European Union for an injection of at least 2.7 billion euros into the troubled Caixa bank.

The country was rescued in 2011 with a 78 billion euro bailout from the European Union and the IMF, a process that involved steep spending cuts and painful reforms.

It exited the bailout in 2014 without the need for further financing, but its economic growth remains weak and a left-wing government which took office last year has reversed some austerity measures, raising market fears over the country’s finances.

Portugal had originally aimed to pay back 14 billion euros of the 29 billion loaned to it by the IMF since 2011.

It has paid back 10.4 billion but still owes 18.5 billion to the Washington-based lender.