July 16, 2012 / 10:19 PM / 5 years ago

UPDATE 1-IMF approves Portugal disbursement, urges strong policies

WASHINGTON, July 16 (Reuters) - The International Monetary Fund on Monday approved a 1.48 billion euro ($1.81 billion) loan disbursement to Portugal under the country's 78-billion-euro international bailout and urged it to stick to strong economic policies and reforms so it can regain access to capital markets.

"It will be important to maintain the commitment to strong policies and structural reforms to foster sustainable growth, especially through labor and product markets reform, to strengthen debt dynamics, and to regain market access," the IMF said in a statement.

It said Portugal's end-2012 fiscal targets "remains within reach" but cautioned that weaker revenues meant that the authorities risked missing the budget deficit goals.

Portugal met last year's budget deficit goal of 5.9 percent of gross domestic product. This year it must post a budget deficit of 4.5 percent of GDP and next year 3 percent.

It called for "requiring close monitoring of developments and continued efforts to strengthen tax compliance".

The IMF praised Portugal for its "strong program implementation" despite constraints posed by the euro zone debt crisis. It said reforms to boost competitiveness and growth in Portugal were critical. A recent sharp rise in unemployment underscored the need for further reforms in labor market policies, the IMF added.

Earlier this month the European Commission said Lisbon would have to come up with new cost-cutting plans for next year after the country's constitutional court ruled that pay cuts to civil servants cannot be applied just to workers in the public sector.

The cuts are part of the government austerity measures and apply to holiday subsidies and amount to up to months' wages.

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