SHORING UP THE ECONOMY
While developments in Portugal's banking sector have been encouraging, banks' adjustment efforts will have to continue.

BIOGRAPHY
Carlos da Silva Costa has been Governor since 2010. He is a member of the Governing Council and General Council of the European Central Bank, the General Board of the European Systemic Risk Board, and the Financial Stability Board Regional Consultative Group for Europe. He is the Chairman of the National Council of Financial Supervisors and honorary Vice-President of the European Investment Bank (EIB), Visiting Full Professor at the Portuguese Catholic University of Oporto and University of Aveiro, and Chairman of the Consultative Council at the School of Economics of the Portuguese Catholic University of Oporto. He graduated in economics from the Faculty of Economics of Oporto University.What is your perspective of Portugal's transition from recession, austerity, early exit from the EU/IMF bailout, and return to growth?
The economy started recovering in 2013, reflecting a gradual recovery of domestic demand and strong export growth, on the back of an improving external and financial environment. One remarkable characteristic during the adjustment period and ongoing recovery was the behavior of exports. Portuguese exporters have been gaining market share in external markets since 2008. A notable dimension of the export performance has been the services sector, especially tourism. Exports' share of GDP increased from around 30% in 2008 to close to 45% in 2017, which signals an important restructuring of the economy. The economic recovery was also supported by strong investment growth, in particular business investment. However, public and housing investment has lagged behind. The economy has been able to maintain a surplus in the current and capital account and also in the goods and services account. These developments have contributed to a gradual improvement in the international investment position, which is still negative. The economy underwent a strong and unprecedented fiscal consolidation process. The general government deficit stands currently at a historically low. Public debt as a percentage of GDP has also initiated a downward trajectory but remains high and considerably above the euro area average. This reinforces the importance of meeting the commitments under European fiscal rules. Moreover, the reduction in the indebtedness ratios of firms and households, together with positive developments in the banking system, has made the Portuguese economy more resilient to shocks.
What were some of the measures taken by the Bank of Portugal to help the country return to greater macroeconomic stability?
In 2010, the bank initiated a comprehensive strategy to address the challenges faced by the banking sector. This strategy was broadened in the context of the 2011-14 EU/IMF Economic Adjustment Program. Our most immediate concerns were to ensure banks' access to liquidity and the reinforcement of their capital ratios. At the same time, banking supervision became significantly more intrusive and forward looking, and the regulatory environment was considerably strengthened. The country's full participation in the banking union, and particularly in the Single Supervisory and Resolution Mechanisms, can be seen as a natural corollary of this much more demanding strategy that we have consistently been following since mid-2010. Major progress has been achieved over the past eight years. Portuguese banks are now increasingly robust, as evident by stronger liquidity and capital positions, reinforced shareholder structures in major banks, and improvements in asset quality. The banking system recognized over EUR33 billion of credit impairments while the biggest banks raised over EUR20 billion of equity. Regarding asset quality, while economic growth has certainly been beneficial, the ongoing comprehensive strategy to reduce NPLs is also bearing fruit. NPLs have decreased more than EUR13 billion since the peak in June 2016. Equally important, deposits have been quite resilient, showing that depositor confidence has been preserved. In addition, banks have continued to fulfill their role in financing the economy.
How do you encourage banks to further strengthen their balance sheets, improve overall asset quality and liquidity, and reduce the level of non-performing loans?
While developments in the banking sector have been encouraging, banks' adjustment efforts will have to continue. The ongoing challenges are four-fold: improve profitability, review the existing business models, reinforce governance models, and embed technological advances in retail banking. Improving profitability is a priority. Amid still-low interest rates, further progress on cost reduction is needed. This is even more pressing in view of the stricter regulatory requirements and the digitization trend. Moreover, banks need to continue to deliver on the targets agreed in their NPL reduction plans. The sustainability of banks' business models, risk management controls, and internal governance processes are key to guaranteeing the soundness of the banking system. These elements are closely monitored and challenged by the Single Supervisory Mechanism and the Bank of Portugal.

TABLE OF CONTENTS
Focus: Community of Portuguese Language Speaking Countries
Making an Impact
Established in 1996, the Community of Portuguese Language Speaking Countries (CPLP) is a mechanism geared at linking and sharing the experience of Lusophone countries. Besides Portugal, this includes Brazil, Portugal, Cape Verde, Angola, Mozambique, Guinea-Bissau, and São Tomé and Príncipe.
read articleFocus
Don’t Mind the Disruption
Having won the 2017 Eurovision Song Contest, Lisbon hosted the 2018 event. The relevance? Well, the contest began back in 1956 as a showcase not only of song, but of then-nascent live television broadcast technology. Today, Portugal is on the cutting edge of new technological developments.
read articleInterview
João Pedro Soeiro de Matos Fernandes , Minister , Environment and Energy Transition
The Ministry for the Environment and Energy Transition is focusing on decarbonizing the economy, valuing the territory and its habitats, and striving for a more circular use of the country's resources.
read articleInterview
António Braz Costa , General Manager, Portuguese Technological Centre for the Textile & Clothing Industries (CITEVE)
CITEVE has transformed the industry by promoting value addition, adopting the latest technologies, and ensuring the highest standards of environmental sustainability.
read articleFocus: New airport
Right Time to Seize Missed Opportunities
Portugal has seen its air traffic figures increase by as much as 80% in the last five years. As a result, its transportation infrastructure, and Lisbon's airport in particular, cannot cope with the rising numbers. A new airport project that will turn a military base into a commercial airport is now under discussion to bring much-needed relief to air traffic.
read articleInterview
Germano de Sousa , President, Grupo Germano de Sousa
Grupo Germano de Sousa's success can best be summed up by its understanding that science and medicine only really progress when technological development is combined with a deeper respect for human values and professional ethics.
read articleInterview
Isabel Capeloa Gil , Rector, Universidade Católica
Having pioneered the introduction of multiple subject areas to Portugal's tertiary education scene, Universidade Católica is aspiring to establish the country's first private medical school and introduce cutting-edge digital transformation.
read articleInterview
Carlos Guillén Gestoso , President, Escola Universitária de Ciências Empresariais, Saúde, Tecnologias e Engenharia & President, Atlantica University
Atlantica University differentiates through its company-university model and an MBA program in partnership with the University of California, Berkley, among other initiatives, to produce practical theoreticians.
read articleFocus: Public teaching staff
An Age-old Problem
Over a decade of austerity measures combined with an ageing population have seen the average age of the Portuguese public teaching staff progressively climb to one of the highest in the OECD. With frozen salaries, an extended retirement age, and precarious working conditions, today the sector faces one of its biggest challenge yet.
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Pedro Queiroz , General Manager, Federation of the Portuguese Agri-Food Industry (FIPA)
Portugal's economic recovery has seen its F&B sector emerge with annual turnovers of EUR16 billion, thanks to FIPA's undeterred focus on stable policies, excellent nutrition standards, and sustainability.
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