Portugal says to make clean exit from bailout programme

(LISBON) - Portugal's prime minister on Thursday gave his clearest indication yet that the country will follow Ireland's example by exiting its 78-billion-euro ($110 billion) international bailout without a credit lifeline.

"The path Portugal has followed until now will today allow us to go forward on our own means," Pedro Passos Coelho said during a speech in Lisbon to mark Labour Day.

A clean exit for Portugal would mark a remarkable turnaround from a year ago, when the country was gripped by a deep political crisis over its austerity measures that dented investor confidence.

Lisbon will officially announce its decision before May 5, when eurozone finance ministers will meet.

Portugal will be the second eurozone nation to emerge from European Union-IMF bailouts, which have forced crisis-hit governments to apply deeply unpopular cuts to rein in bulging public deficits.

But unlike Ireland, which exited its bailout in December, the country has already managed to return to debt markets before its aid programme ends on May 17.

Lisbon on April 23 took its final step in its return to normal financing in international markets with its first regular issue of long-term debt since 2011.

In a sign of improving investor confidence, the yield on Portugal's bonds dropped to its lowest point since 2006 this month at 3.6 percent, down from more than 18 percent at the height of the crisis.

"The stars are aligned very much that Portugal will opt for a Irish-style 'naked exit'," said David Schnautz, an analyst at Commerzbank.

"Even without explicit support in the form of a precautionary credit line or something similar, in case need be, the implicit support can very likely still turned into an explicit one."

The decision comes after representatives of the so-called troika of international creditors -- the International Monetary Fund, the European Commission, the European Central Bank -- finished their final evaluation of the country's compliance with the terms of the bailout.

Germany, the eurozone's largest economy, has already made it clear it would prefer Portugal to make an outright exit without any standby loans -- particularly ahead of European elections next month.

"I think that Portugal will opt for an exit without a precautionary line of credit," said Pedro Lino, an analyst at Dif Broker.

"If the government announced it will rely on a backup programme, it would give ammunition to the opposition to argue that Portugal's efforts have been in vain."