L 240/8 Official Journal of the European Union 16.9.2011 DECISIONS COUNCIL IMPLEMENTING DECISION of 2 September 2011 amending Implementing Decision 2011/344/EU on granting Union financial assistance to Portugal (2011/541/EV) THE COUNCIL OF THE EUROPEAN UNION, Having regard to the Treaty on the Functioning of the European Union, Having regard to Council Regulation (EU) No 407/2010 of 11 May 2010 establishing a European financial stabilisation mechanism (), and in particular Article 3(2) thereof, Having regard to the proposal from the European Commission, Whereas: (") ¢ O] 0] Upon a request by Portugal, the Council granted it financial assistance (Implementing Decision 2011/344[EU (%) in support of a strong economic and financial reform programme aiming at restoring confidence, enabling the return of the economy to sustainable growth, and safeguarding financial stability in Portugal, the euro area and the Union. In line with Article 3(9) of Implementing Decision 2011/344[EU, the Commission, together with the Inter- national Monetary Fund (IMF) and in liaison with the European Central Bank (ECB’), has conducted the first review of the authorities” progress on the implementation of the agreed measures as of the effectiveness and economic and social impact of those measures. Under the Commission’s current projections for nominal GDP growth (-0,7 % in 2011, 0,0 % in 2012, 2,5 % in 2013 and 3,9 % in 2014), the fiscal adjustment path is in line with the Council Recommendation to Portugal of 2 December 2009 with a view to bringing an end to the situation of an excessive government deficit, pursuant to Article 126(7) of the Treaty, and is consistent with a path for the debt-to-GDP ratio of 101,1 % in 2011, L 118, 12.5.2010, p. 1. L 159, 17.6.2011, p. 88. 106,2 % in 2012, 107,3% in 2013 and 106,4 % in 2014. The debt-to-GDP ratio would therefore be stabilised in 2013 and be placed on a declining path thereafter, assuming further progress in the reduction of the deficit. Debt dynamics are affected by several below-the-line operations, including sizeable acquisitions of financial assets, in particular for possible bank recap- italisation and financing to state-owned enterprises (‘SOEs) and differences between accrued and cash interest payments. The quarterly quantitative performance criterion on the general government cash balance for the first half of 2011 was met. However, recent data pointed to an opening gap between fiscal trends and the 2011 deficit targets. Expenditure overruns in the first half of the year, underperforming non-tax revenue, the reclassification of some operations led to a projected shortfall of about 1,1 % of GDP over the whole of 2011. The net costs related to the sale of Banco Portugués de Negdcios (BPN) would add another 0,2% of GDP to the headline deficit. The authorities have reacted promptly. Budget execution has been tightened, a one-time surcharge on the personal income tax has been introduced, increases in the VAT rates of natural gas and electricity have been brought forward from 2012 and sales of concessions will be stepped up. The authorities should also seek to adopt other consolidation measures of a permanent nature and/or frontload other measures planned for next year. The ongoing process of a phased transfer of banks pension funds to the State social security system should exceptionally provide a buffer towards meeting the deficit target for 2011. The acquired assets of these pension funds should not be used in a way detrimental to long-term fiscal sustain- ability. The government should not count on further transfers of pension funds to meet the targets for the coming years. Progress is being made to strengthen public financial ~management through improved reporting and monitoring and reforming the budgetary framework, in line with the recommendations from the Commission services and IMF staff. Banks are working towards meeting the higher capital requirements as required by the programme. Existing legislation is being amended to strengthen the augmented solvency support facility. A balanced and orderly deleveraging of the banking sector remains