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LISBON, Nov 20 AFP

November 21 2012, 07:52AM

Heavily-indebted Portugal faces serious economic risks and the success of its international rescue plan will depend, in part, on economic reforms in the eurozone, the International Monetary Fund (IMF) says.

"The near-term outlook is uncertain, and sizeable medium-term economic challenges remain," said an IMF statement on Tuesday that underscored the importance of the economic environment across the 17-nation eurozone.

Portugal was granted financial aid worth 78 billion euros ($A96.77 billion) in May 2011 in exchange for economic reforms aimed at reducing the country's swollen public deficit and debt, but which have also helped push it into recession and raise the unemployment rate.

Portugal's economy is expected to contract by 3.0 per cent this year and by 1.0 per cent in 2013, while unemployment hit a record 15.8 per cent of the workforce in the third quarter of 2012.

The IMF warned that "success of the program will also depend on whether European policymakers forge ahead with reforms to overcome euro area fissures" since trade with eurozone partners is crucial to Portugal's economic recovery.

For the IMF, "one medium-term risk is that growth recovers too slowly to make a meaningful impact on high unemployment, triggering outward migration by young, well educated workers that may be difficult to reverse".

According to official statistics, around 100,000 Portuguese left the country in 2011, and a similar scenario could take place this year.

The Portuguese have historically sought work elsewhere when times were hard at home.

The IMF statement noted however that "despite setbacks, fiscal adjustment remains broadly on track".

On Monday, the IMF, the European Union (EU) and the European Central Bank (ECB) gave Portugal pass marks at the end of a sixth review of the financial rescue program.

Portuguese officials would like to be able to do without the aid and return to public debt markets in September 2013, but many economists consider that objective to be unattainable.

European Economic Affairs Commissioner Ollie Rehn nonetheless said that "confidence in Portugal's prospects continues to grow, both among its institutional partners and market participants".

"This bodes well for Portugal's full return to market financing," he added.