The European Stability Mechanism said on Tuesday it had decided to approve the waiver on Portugal's early repayment of the European Financial Stability Facility (EFSF) loan, thus allowing the coountry to complete early repayment of its loan from the International Monetary Fund (IMF).
In a statement released on Tuesday, the euro zone's rescue fund pointed out that the EFSF Board of Directors, one of the three official creditors of the external aid programme to Portugal (2011-2014), on Tuesday decided to waive compulsory repayment of loans granted to the country under this fund, "allowing Portugal to proceed with the early repayment of its loan from the IMF," according to the express wishes of the Portuguese Government.
In return Portugal commits to pay the EFSF up to €2 billion in advance between 2020 and 2023, after paying the full amount of the loan to the IMF, which is subject to market conditions and the impact on the sustainability of the loan, which will be assessed at the time.
The loan agreement between the EFSF - the European creditors - and Portugal specified that, when an advance payment is made to the IMF, a proportionate amount of the financial assistance provided under the EFSF should also be settled, but European creditors may waive that requirement, which is what has happened now.
"Prepayment to the IMF will generate financial benefits for Portugal by replacing debt to the IMF with loans from the capital markets at lower costs," said the EFSF Executive Chairman and director of the European Stability Mechanism, Klaus Regling.
According to Regling, "these savings, along with robust economic performance, have been seen as a positive sign for the markets and provide an opportunity to extend and mitigate the country's reimbursement profile.
As part of the financial assistance programme (2011 to 2014), Portugal received €78 billion in external aid, provided in equal parts (one third each) by the EFSF, the European Union and the IMF. While the IMF's debt maturities are concentrated between 2021 and 2023, repayments to the EFSF and the EU extend until 2042.
On 29 November, Portuguese Prime Minister António Costa announced in parliament that by the end of this year Portugal will repay all its debt to the IMF of €4.6 billion.
