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IMF Executive Board Concludes First Post-Program Monitoring Discussions with Greece

Author(s):
International Monetary Fund. European Dept.
Published Date:
March 2019
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On March 6, 2019, the Executive Board of the International Monetary Fund (IMF) concluded the First Post-Program Monitoring Discussions1 with Greece.

The economic recovery in Greece is accelerating and broadening. Growth is projected to reach 2.4 percent this year (up from an estimated 2.1 percent in 2018) supported by exports, private consumption and investment as sentiment improves. A gradual recovery in private deposits has facilitated a further relaxation of capital flow management measures, though bank lending remains negative. Over the medium term, economic expansion is expected to slow down to just above 1 percent.

Greece’s medium-term debt repayment capacity is adequate, but subject to rising risks amid still significant vulnerabilities. Debt-to-GDP is projected to remain on a downward trajectory in the medium term thanks to continued high primary surpluses agreed with European partners, nominal GDP growth, and debt relief, which provided for a substantial precautionary cash buffer and low debt service on official loans. However, risks (both domestic and external) have intensified, and crises legacies—including high public debt and impaired private balance sheets— and a weak payment discipline continue to pose significant vulnerabilities.

Executive Board Assessment2

Executive Directors welcomed the commendable progress in implementing reforms which have helped restore stability and growth, reduce unemployment, improve debt sustainability and re-access markets. Building on Greece’s growth momentum, they encouraged the authorities to address still-significant vulnerabilities and strengthen the economy’s resilience and inclusion by enhancing labor market flexibility, rebalancing the fiscal policy mix, and strengthening bank balance sheets to support sustainable and more inclusive growth. Directors recognized that Greece’s medium-term repayment capacity remains adequate, but noted rising downside risks that require further actions to strengthen the economy.

Directors noted that further efforts are needed to lock in competitiveness gains, enhance productivity, and ensure labor market flexibility. They expressed concern about the risks to employment and competitiveness from the combination of the recent reversal of the 2012 collective bargaining agreement reform and the increase in the statutory minimum wage, which was well above productivity growth. Looking ahead, Directors encouraged the authorities to accelerate reforms that could both mitigate these downside risks and help boost productivity and lower non-wage costs. They recommended further steps to improve the business climate and facilitate higher and more diversified investment, including long-needed deeper product market reforms aimed at improving product choice, quality, and competition.

Directors emphasized the importance of adopting a more growth-friendly and socially inclusive fiscal policy mix. They called for a further fiscal rebalancing, while meeting medium-term fiscal targets agreed with European partners. Directors supported the planned tax cuts in 2020, prioritizing lower direct tax rates while broadening the personal income tax base. They also recommended allocating more fiscal space to public investment and better targeted social spending. To support these objectives, Directors also called for accelerating public financial management reforms and tax compliance efforts and addressing the structural causes of arrears. They also recommended deeper contingency planning for the possible realization of rising fiscal risks.

Directors encouraged the authorities to take a more comprehensive, well-coordinated approach to strengthening bank balance sheets and reviving growth-enhancing lending. Noting the high level of non-performing exposures (NPEs), they encouraged the authorities to bring together key stakeholders and base policy measures on cost-efficiency assessments of various NPE reduction options, while considering the impact of forthcoming regulatory changes and related fiscal implications. Directors encouraged further strengthening of the legal toolkit to facilitate private-sector based NPE reduction before considering state support, and to avoid measures that could further erode payment discipline, while improving bank internal governance. Liberalization of capital flow management measures should continue in line with the conditions-based roadmap.

Greece: Selected Economic Indicators
Population (millions of people)10.8Per capita GDP (€’000)16.7
IMF quota (millions of SDRs)2,428.9Literacy rate (percent)97.1
(Percent of total)0.51Poverty rate (percent)34.8
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.
20172018201920202021202220232024
(proj.)
Output
Real GDP growth (percent)1.52.12.42.21.61.21.21.2
Employment
Unemployment rate (percent)21.519.618.517.516.215.014.313.6
Prices
CPI inflation (period avg., percent)1.10.81.11.41.71.71.81.8
General government finances (percent of GDP) 1/
Revenue48.349.047.546.045.244.444.244.0
Expenditure47.348.647.745.945.144.444.744.7
Overall balance1.00.4-0.20.10.10.0-0.5-0.6
Overall balance (excl. program adjustors)0.80.3
Primary balance4.13.83.53.53.53.53.02.8
Public debt179.3183.3174.2167.3160.9153.8147.2143.2
Money and credit
Broad money (percent change)5.74.2
Credit to private sector (percent change)-5.8-7.5
3-month T-bill rate (percent)2.31.1
Balance of payments
Current account (percent of GDP)-2.4-3.4-2.7-2.6-2.6-2.6-3.0-3.4
FDI (percent of GDP)-1.5-1.6-1.8-1.5-1.5-1.5-1.5-1.5
External debt (percent of GDP)224.0217.7208.2200.8194.3189.2184.9181.8
Exchange rate
REER (percent change) 2/1.00.8-0.2-0.7-0.6-0.4-0.3
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 the primary balance definition outlined in the EU enhanced surveillance framework with Greece.

Published data for trading partners not available yet for 2024.

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 the primary balance definition outlined in the EU enhanced surveillance framework with Greece.

Published data for trading partners not available yet for 2024.

Member countries with IMF credit outstanding exceeding the smaller of SDR1.5 billion or 200 percent of quota are subject to Post-Program Monitoring (PPM). PPM takes place between successive Article IV consultations and gives special attention to matters related to capacity to repay the Fund, vulnerabilities, and risks.

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: http://www.imf.org/external/np/sec/misc/qualifiers.htm.

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