Journal Issue

IMF Executive Board Concludes 2018 Article IV Consultation with Greece

International Monetary Fund. European Dept.
Published Date:
July 2018
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On July 27, 2018, the Executive Board of the International Monetary Fund (IMF) concluded the Article IV consultation1 with Greece.

Following a deep and protracted contraction, growth has finally returned to Greece. The large macroeconomic stabilization effort, structural reforms, and a better external environment contributed to an increase in real GDP of 1.4 percent in 2017, helped also by substantial support from European partners, which secured medium-term sustainability and restored market access. However, stock legacy issues persist, as unemployment remains high and public and private balance sheets remain impaired.

The recovery is projected to strengthen in the near-term, with growth expected to reach 2 percent this year and 2.4 percent in 2019, and with unemployment declining as the output gap closes. However, external and domestic risks are tilted to the downside, including from slower trading partner growth, tighter global financial conditions, regional instability, the domestic political calendar, and risks of reform fatigue. Moreover, in the long term, population aging is expected to weigh down on potential growth, increasing the need to foster productivity.

Executive Board Assessment2

Executive Directors commended the authorities for important reforms and policy choices in recent years that have largely eliminated fiscal and current account imbalances, stabilized the financial sector, reduced unemployment, and restored growth. These substantial efforts, along with welcome debt relief by European partners, have put Greece on a path to successfully exit the European Stability Mechanism-supported program in August 2018. While a recovery is underway, Directors stressed that significant crisis legacies and social pressures remain, and the risks to the outlook remain on the downside. To address these issues, they encouraged further efforts to rebalance fiscal policy, strengthen bank balance sheets, and reform product and labor markets to boost sustainable and inclusive growth.

Directors agreed that, given the significant adjustment to date, Greece does not require further fiscal consolidation, while also noting that achieving the high primary balance targets comes at a cost to growth, including through high taxes and constrained social and investment spending. They supported a shift to a more growth-friendly and inclusive fiscal policy mix, and welcomed the authorities’ commitment to fully implement the pre-legislated fiscal package in 2019 and 2020. Directors called for further fiscal rebalancing to reduce direct taxes and increase targeted social spending to support growth and reduce still-high poverty.

Directors urged the authorities to accelerate efforts to address high non-performing loands (NPLs) and restore lending. In this regard, they encouraged banks to step up use of the strengthened financial sector legislative and regulatory frameworks that have created a better environment for addressing high non-performing exposures, including through the development of a secondary market for non-performing loans. A number of Directors also encouraged the authorities to set more ambitious NPL targets. Directors called for building-up of capital buffers, further steps to mitigate liquidity and funding risks, and stronger bank internal governance. They supported gradual relaxation of exchange restrictions in line with the milestone-based roadmap and taking due account of banks’ liquidity.

Directors noted that in the context of limited macroeconomic policy space, further structural reform efforts are needed to boost productivity, competitiveness, and social inclusion. Despite important progress, Greece continues to score lower than peers in competitiveness indicators and lags its peers in liberalizing most service sector professions. Directors urged the authorities to further improve the business environment, aiming to foster competition in product markets and preserving labor market flexibility—through a prudent minimum wage policy and preserving reforms to collective bargaining. These reforms would help ensure competitiveness and preserve the momentum of employment recovery.

Directors underscored the importance of further public sector efficiency improvements and strengthened governance, noting, in particular, the shortcomings in tax enforcement. In addition to efforts in public revenue administration, Directors encouraged the authorities to provide adequate protection from liability of public officials, to implement the Anti-Corruption Action Plan with a focus on improving data collection and transparency, and to take measures to modernize the judiciary. They also emphasized the need to protect achieved gains in the quality of official statistics by defending the statistical agency against any efforts to undermine its credibility, guaranteeing its professional independence, and addressing remaining shortcomings in reporting.

Directors welcomed the debt relief measures granted by European partners and the improvement in debt sustainability over the medium term. They concurred that this relief, combined with a large cash buffer, will facilitate medium-term market access. A number of Directors considered that, over the longer term, these measures will significantly reduce gross financing needs. Many others, however, cautioned that long-term sustainability remains uncertain and emphasized the need for realistic assumptions for primary balance targets and growth projections. Directors welcomed the continued commitment of Greece’s European partners to support the country in the future, including through further debt relief, if needed.

Directors looked forward to close engagement between the authorities and the Fund under the post-program monitoring framework.

Greece: Selected Economic Indicators
Population (millions of people)10.8

Per capita GDP (€’000)16.5
IMF quota (millions of SDRs)8.9Literacy rate (percent)97.1
(Percent of total)0.51Poverty rate (percent)35.7
Main products and exports: tourism services; shipping services; food and beverages; industrial products; petroleum products; chemical products.
Key export markets: E.U. (Italy, Germany, Bulgaria, Cyprus, U. K.), Turkey, U.S.
Real GDP growth (percent)-
Unemployment rate (percent)23.621.519.918.116.315.214.414.1
CPI inflation (period avg., percent)
General government finances (percent of GDP) 1/
Overall balance0.71.10.5-
Overall balance (excl. program adjustors)0.60.8
Primary balance3.
Public debt183. 5181.8188.1177.1169.6162.9155.3151.3
Money and credit
Broad money (percent change)2.25.7
Credit to private sector (percent change)-4.5-5.8
3-month T-bill rate (percent)3.12.3
Balance of payments
Current account (percent of GDP)-1.1-0.8-0.7-0.4-0.3-0.2-0.10.0
FDI (percent of GDP)-2.4-1.7-1.7-1.7-1.6-1.6-1.6-1.5
External debt (percent of GDP)247. 8227.9221.3209.7199.7190.2182.5177.6
Exchange rate
REER (percent change)
Sources: Elstat; Ministry of Finance; Bank of Greece; World Bank, World Development Indicators; IMF, International Finance Statistics; IMF, Direction of Trade Statistics; and IMF staff projections.

Based on program definitions outlined in the Technical Memorandum of Understanding of the Third Economic Adjustment Program.

Sources: Elstat; Ministry of Finance; Bank of Greece; World Bank, World Development Indicators; IMF, International Finance Statistics; IMF, Direction of Trade Statistics; and IMF staff projections.

Based on program definitions outlined in the Technical Memorandum of Understanding of the Third Economic Adjustment Program.

Under Article IV of the IMF’s Articles of Agreement, the IMF holds bilateral discussions with members, usually every year. A staff team visits the country, collects economic and financial information, and discusses with officials the country’s economic developments and policies. On return to headquarters, the staff prepares a report, which forms the basis for discussion by the Executive Board.

At the conclusion of the discussion, the Managing Director, as Chairman of the Board, summarizes the views of Executive Directors, and this summary is transmitted to the country’s authorities. An explanation of any qualifiers used in summings up can be found here:

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