Portugal has started down a long road of economic adjustment to boost growth and correct an excessive reliance on debt. The government is resolutely implementing the EU-IMF financial assistance programme of fiscal adjustment and reform. Accordingly, significant legislation has been passed, with broad political support, to improve the performance of the labour and product markets. In addition, many OECD recommendations of the last survey have been adopted. The authorities should ensure effective implementation of these ambitious reforms. Returning to a sustainable fiscal position is a pre-condition for restoring confidence, investment and growth. The authorities should therefore aim to meet the headline deficit targets in the EU-IMF programme. However, the government may need to let automatic stabilisers play at least partially if risks materialise and growth turns out much lower than projected in the programme, while sticking to its structural fiscal targets to restore investors’ confidence. At the same time, credit to the economy should be supported by promoting swift recognition of bad loans, and ensuring that the banks maintain the required capital ratios and the pace of convergence towards the indicative target for the loan-to-deposit ratio does not thwart economic activity. Special attention should be paid to the financing conditions of small and medium-sized enterprises, notably by making firms more reliant on equity and less on debt, and by re-directing EU funds. Fundamental structural reforms are central to boosting potential growth and shifting economic activity from low-productivity domestically-orientated sectors to tradable goods and services. Vigorous reforms of the labour market would combat duality and boost competitiveness.