Portugal pays IMF in advance to save on interest

21 September 2015

Portugal will make an advanced repayment of part of the loan granted by the International Monetary Fund (IMF) by paying 10.6 billion euros by December, said the Portuguese state treasury management agency AGTDP.

The agency said it had contracted debt in the amount of 6.4 billion euros to make the advance payment to the IMF that will allow a saving of 730 million euros in interest over a four-year period, given that the IMF applies a very high rate of interest.

The IMF loan (26 billion euros), granted under the bailout to Portugal, is much more expensive than the European part of the bailout and the Portuguese government has therefore made it a priority to pay it off ahead of schedule, replacing this part of the debt with other cheaper loans now that the country is able to access debt markets at acceptable rates (2.2 percent at the last auction).

The interest rate charged to Portugal by the IMF is an average of 4.8 percent, while the rate charged by the European institutions is 2.3 percent.

In 2014 the Portuguese government began negotiations with European partners with a view to advance payment of the IMF loan, which is expensive compared to market financing conditions, according to the Ministry of Finance. (macauhub/PT)