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Greece: Fourth Review Under the Extended Arrangement Under the Extended Fund Facility, and Request for Waivers of Applicability and Modification of Performance Criterion

Author(s):
International Monetary Fund. European Dept.
Published Date:
July 2013
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Context

1. Greece has made important progress in rectifying pre-crisis imbalances. The country entered the crisis with one of the highest fiscal and external imbalances in the euro area. With unprecedented European and international support, steadfast fiscal adjustment by the Greek authorities since 2009 delivered an improvement in the cyclically-adjusted primary balance of over 15 percent of GDP. The country is now at the cusp of achieving primary balance—a remarkable achievement. External imbalances have also been reduced sharply. However, this adjustment is due principally to recession (import compression), not productivity-enhancing structural reform.

2. The ongoing correction of imbalances has come at a very high cost. The economy is in the sixth year of recession. Output has fallen by nearly 25 percent since its peak in 2007. The unemployment rate is about 27 percent, and youth unemployment exceeds 57 percent.

3. The high adjustment cost reflects in important part the delayed, hesitant and piecemeal implementation of structural reforms (see Greece: Ex Post Evaluation of Exceptional Access under the 2010 Stand-By Arrangement and 2013 Article IV Consultation). Amidst recurrent domestic political crises, vested interests opposed to reforms have been increasingly emboldened. Thus, reforms have fallen well short of the critical mass needed to transform the investment climate. The onus therefore remains on delivering rapidly on structural reforms to unlock growth and create jobs, which would lessen the pain of further adjustment.

4. The review took place against the backdrop once again of domestic political tensions that culminated in a cabinet reshuffle. The closure of the public broadcasting company (ERT), as part of the public administration reform of the government, led the smallest partner (Democratic Left) to withdraw from the governing coalition. Consequently, the government’s majority in parliament was reduced to a slim margin.

Recent Developments

5. Recent macroeconomic developments are broadly in line with program projections.

  • The output contraction is slowly decelerating (Table 1; Figures 1 and 2). Real GDP declined by 5½ percent y/y in Q1 2013 (compared to -5¾ percent in Q4 2012). Fiscal adjustment and falling incomes further reduced public and private consumption, while investment appears to have stabilized at a depressed level. The contribution of the external sector disappointed as exports weakened, reflecting soft global demand. But a number of indicators—e.g., economic sentiment and higher tourism bookings—point to a milder contraction in Q2 than in Q1.
  • Ample spare capacity is lowering wages and prices (Figure 3 and 4). Unemployment continues rising (from 26.4 percent in December 2012 to 26.9 percent in April 2013), although the pace of increase is slowing, with a modest pickup in hiring. Spare capacity in industry has stabilized at an elevated level. The output gap has precipitated large wage adjustments (nominal wages declined by 11 percent during 2010–12), which have also finally started to be transmitted to lower prices—the CPI and the GDP deflator are declining.
  • External adjustment is continuing largely through import compression (Table 2 and Figure 56). Besides soft global demand, weak exports reflect sluggish improvements in price competitiveness (the ULC-based REER depreciated by over 8 percent y-on-y in Q1, but the CPI-based REER remained broadly stable y-on-y in June) and limited availability of trade financing. The 12-month current account deficit through Q1 2013 reached 2¼ percent of GDP (compared to 3½ percent at end-2012). But the underlying external position remains relatively unfavorable, with the structural current account deficit estimated at about 6 percent of GDP in 2012, implying an overvaluation in the CPI-based REER of about 10 percent (see External Sector Report).
  • Liquidity and financial market conditions are mending slowly (Figure 78). Since mid-2012, deposits have recovered and reliance on Eurosystem funding has declined sharply. In the last two months, deposit movements have stabilized, and access to Eurosystem funding now stands at around €85 billion. The injection of bridge capital at year-end allowed ELA to decline sharply, but further reduction will be constrained by the pace of deposit inflows, given banks’ limited ECB-eligible collateral. Interest rates remain elevated, and the recent political uncertainty and expectations of tighter monetary policy in advanced economies have led to an increase in sovereign spreads to around 900 bps (from around 700 bps after the upgrade by Fitch in May).
Table 1.Greece: Selected Economic Indicators, 2009–14
200920102011201220132014
Est.Prog.Proj.Proj.
(Percentage change, unless otherwise indicated)
Domestic economy
Real GDP−3.1−4.9−7.1−6.4−4.2−4.20.6
Output gap (percent of pot. output)7.33.3−2.6−7.7−10.6−10.6−9.5
Total domestic demand−5.5−7.0−8.7−10.4−5.6−5.6−1.1
Private consumption−1.6−6.2−7.7−9.1−6.9−6.9−1.6
Public consumption4.9−8.7−5.2−4.2−4.0−4.0−6.2
Gross fixed capital formation−13.7−15.0−19.6−19.2−4.0−4.08.4
Change in stocks (contribution)−1.20.7−0.40.00.40.40.0
Foreign balance (contribution)3.03.02.43.72.62.61.8
Exports of goods and services−19.45.20.3−2.43.03.04.6
Imports of goods and services−20.2−6.2−7.3−13.8−6.4−6.4−1.9
Unemployment rate (percent) 1/9.512.517.724.227.027.026.0
Employment 1/−1.1−2.7−6.8−8.0−3.7−3.70.6
Unit labor costs4.20.1−2.4−6.4−6.5−6.5−1.6
Consumer prices (national definition), period average1.24.73.31.5−0.8−0.8−0.4
Consumer prices (HICP), period average1.34.73.11.0
Core prices, period average 2/2.32.61.1−0.3
GDP deflator2.31.11.0−0.7−1.1−1.1−0.4
(Percent of GDP, unless otherwise indicated)
Balance of payments
Current account−11.2−10.1−9.9−3.4−0.8−0.8−0.3
Structural current account balance−7.0−8.3−10.9−5.9−4.9−5.3−4.2
Trade balance−7.8−6.8−6.0−2.5−0.2−0.11.5
Export of goods and services18.320.523.425.427.427.428.3
Imports of goods and services−26.2−27.3−29.5−27.9−27.6−27.5−26.8
Total transfers0.60.10.30.71.81.81.5
Net income receipts−3.9−3.5−4.1−1.6−2.5−2.5−3.2
Net international investment position−86.4−98.4−86.1−114.5−118.9−119.2−117
Public finances (general government)
Total revenues38.340.642.444.144.342.943.6
Total expenditures54.051.452.050.448.447.146.8
Primary expenditures48.845.544.845.444.343.042.1
Overall balance−15.6−10.8−9.6−6.3−4.1−4.1−3.2
Primary balance−10.5−4.9−2.4−1.30.00.01.5
Cyclically-adjusted primary balance−13.0−6.1−1.32.25.04.85.9
Gross debt130148170157176176174
Interest rates and credit
Lending interest rate (percent)3/5.16.16.85.85.5
Private credit growth (percent change) 4/4.10.0−3.1−4.0−6.5−5.6−4.0
Exchange rates, end-period (percent change) 3/
Nominal effective exchange rate0.4−3.70.0−0.51.3
Real effective exchange rate (CPI-based)1.7−1.2−0.7−2.0−0.7
Real effective exchange rate (man. ULC-based)1.10.8−6.1−8.4−8.4
Memorandum items:
Nominal GDP (billions of euros)231222209194183184184
Nominal GDP (percent change)−0.9−3.9−6.1−7.1−5.3−5.30.2
Sources: Elstat; Ministry of Economy and Finance; Bank of Greece; and IMF staff projections.

Based on Labor Force Survey.

Core prices exclude energy, food, alcohol, and tobacco.

Data for 2013 as of May.

Includes securitized or otherwise transferred loans from 2010 onward.

Sources: Elstat; Ministry of Economy and Finance; Bank of Greece; and IMF staff projections.

Based on Labor Force Survey.

Core prices exclude energy, food, alcohol, and tobacco.

Data for 2013 as of May.

Includes securitized or otherwise transferred loans from 2010 onward.

Figure 1.Greece: Demand Indicators, 2007–13

Sources: Elstat; Bank of Greece; and IMF staff estimates.

1/ Interpolated monthly.

2/ Deflated by PPI excluding energy.

3/ Deflated by CPI.

Figure 2.Greece: Supply Indicators, 2007–13

Sources: Elstat; Eurostat; and IMF staff estimates.

1/ Interpolated monthly.

2/ Over past three months.

3/ Over next three months.

Figure 3.Greece: Labor Market Developments, 2007–13

Sources: Elstat; Eurostat; Haver; and IMF staff calculations.

1/ Includes wholesale and retail trade, transportation and storage, and accomodation and food service activities.

Figure 4.Greece: Inflation Developments, 2005–13

(Year-on-year percent change)

Sources: Elstat; Eurostat; Haver; and IMF staff calculations.

1/ Excludes food, alcohol, tobacco, and energy.

2/ Private sector business economy. Interpolated monthly from seasonally adjusted data.

Table 2.Greece: Summary of Balance of Payments, 2010–18
201020112012201320142015201620172018
Proj.
(Billions of euro)
Current account balance−22.5−20.6−6.5−1.4−0.60.10.41.32.0
Balance of goods and services−15.0−12.6−4.9−0.12.74.76.07.59.1
Goods balance−28.3−27.2−19.6−16.8−15.6−15.1−15.2−15.2−15.3
Exports17.120.222.022.222.623.324.025.026.0
Imports45.447.541.639.038.138.439.240.241.3
Services balance13.214.614.716.718.219.821.222.724.4
Credit28.528.627.128.129.531.333.035.137.2
Debit15.214.012.411.511.311.511.912.312.8
Income balance−7.7−8.6−3.1−4.6−5.9−6.8−7.3−7.7−7.9
Credit4.03.33.33.84.04.44.75.25.6
Debit11.711.96.38.410.011.212.112.813.5
Current transfers (net)0.20.61.43.32.72.21.81.50.8
Capital and financial account balance−8.6−21.0−103.4−33.3−14.7−7.1−3.2−5.4−5.3
Capital account balance2.12.72.34.63.53.23.33.32.8
Financial account−10.6−23.7−105.7−38.0−18.1−10.3−6.5−8.7−8.0
Direct investment−0.9−0.52.31.63.01.92.02.12.9
Portfolio investment−20.9−19.8−99.9−3.2−9.1−5.4−2.2−3.60.0
Of which: government−26.8−23.3−57.05.8−9.1−6.1−2.8−4.7−1.2
Other investment (excl. program financing)11.0−3.4−8.1−36.4−12.1−6.9−6.3−7.2−11.0
Reserve assets (increase = -)0.10.00.00.00.00.00.00.00.0
Net errors and omissions−0.40.10.00.00.00.00.00.00.0
Program financing, net31.541.5109.934.810.90.52.74.13.2
Unidentified financing0.00.00.00.04.46.50.00.00.0
(Percent of GDP)
Current account balance−10.1−9.9−3.4−0.8−0.30.10.20.60.9
Balance on goods and services−6.8−6.0−2.5−0.11.52.53.03.64.2
Goods balance−12.7−13.1−10.1−9.2−8.5−8.0−7.6−7.3−7.0
Services balance6.07.07.69.19.910.410.610.911.1
Income balance−3.5−4.1−1.6−2.5−3.2−3.6−3.7−3.7−3.6
Current transfers0.10.30.71.81.51.20.90.70.4
Capital and financial account balance−3.9−10.1−53.4−18.2−8.0−3.7−1.6−2.6−2.4
Capital account balance0.91.31.22.51.91.71.71.61.3
Financial account−4.8−11.3−54.6−20.7−9.9−5.4−3.2−4.2−3.7
Direct investment−0.4−0.21.20.91.61.01.01.01.3
Portfolio investment−9.4−9.5−51.6−1.7−4.9−2.8−1.1−1.70.0
Of which: government−12.1−11.2−29.43.2−4.9−3.2−1.4−2.2−0.5
Other investment5.0−1.7−4.2−19.8−6.6−3.6−3.2−3.5−5.0
Reserve assets (increase = -)0.00.00.00.00.00.00.00.00.0
Net errors and omissions−0.20.10.00.00.00.00.00.00.0
Program financing14.219.956.719.05.90.31.42.01.5
Unidentified official financing / market access0.00.00.00.02.43.40.00.00.0
Gross external debt213.1225.4232.5236.6228.9210.9193.6180.2166.6
Public sector 1/150.9173.5183.3185.6178.8162.6147.3136.3124.6
Private sector62.251.949.250.950.148.346.343.942.1
Memorandum item:
Current account balance in cash terms−10.1−9.9−3.4−0.30.82.22.63.23.6
Structural current account balance−8.3−10.9−5.9−5.3−4.2−2.6−1.3−0.30.5
Sources: Bank of Greece; and IMF staff estimates.

Includes debt of the monetary authority.

Sources: Bank of Greece; and IMF staff estimates.

Includes debt of the monetary authority.

Figure 5.Greece: Balance of Payments, 2010–13

Sources: Bank of Greece; and IMF staff calculations.

Figure 6.Greece: Competitiveness Indicators, 2005–13

Sources: Haver; Eurostat; IMF, Direction of Trade Statistics; and IMF staff calculations.

Figure 7.Greece: Financial Indicators, 2007–13

Sources: Bloomberg; InTrade; Moody’s CreditEdge; and IMF staff calculations.

1/ Simple average of National Bank of Greece, Alpha Bank, EFG Eurobank, and Piraeus.

2/ Simple average of Coca-Cola Hellenic Bottling, Hellenic Petroleum, Hellenic Telecom, OPAP, and Titan Cement.

3/ Current 1-year EDF calculated by Moody’s Analytics. EDF is the probability of default is defined as the failure to make a scheduled debt payment. The EDF is driven by both asset volatility and market leverage.

Figure 8.Greece: Money and Banking Developments, 2007–13

Sources:Bank of Greece; and IMF staff estimates.

1/ Nonperforming loans exclude restructured loans.

Contributions to GDP

(Percent)

Sources: Elstat; and IMF staff calculations.

Economic Sentiment, SA

(Percent balance)

Production Slack, SA

(Percent balance)

Sources: Elstat; Eurostat; and IMF staff calculations.

1/ Interpolated monthly.

2/ Private sector business economy.

Wages and Prices

(Y-O-y percent change)

REER

(2007 = 100)

Sources; European Central Bank; Eurostat; Haver; and IMF staff calculations.

External Trade, SA

(Billions of euros)

Bank Deposits and Eurosystem Borrowing

(Billions of euros)

Source: Bank of Greece; European Central Bank; Haver; and IMF staff estimates.

1/ Interest rate for nonfinancial corporations

2/ Agreed maturity up to oneyear.

3 /Revolving accounts up to one million euros floating or up to one year maturity.

Greece-Euro Area Interest Rate Spread 1/

(Percent)

6. The recession is continuing to strain balance sheets.

  • Credit conditions remain tight (Tables 34). Overall, the deteriorating asset quality is hampering the flow of credit to the private sector, and the contraction in credit has worsened slightly (to -3.7 percent y/y in May) in line with staff projections.
    • For the household sector, the rising liabilities-to-income ratio (at 109 percent in Q4 2012), prospects for further nominal income adjustment, and falling house prices (-30 percent cumulative from its Q3 2009 peak to Q1 of this year) have contributed to a simultaneous tightening of credit conditions and a reduction in the demand for new loans in the last two quarters (as confirmed by survey results). With falling wages, rising unemployment, and tax increases all cutting into disposable income, the already high household NPLs increased further to above 27 percent in Q1. Traditionally low savings rates, which remained close to zero in Q4 2012, have made households vulnerable to income shocks (Figure 9).
    • For the corporate sector, NPLs are rising (to 31 percent in March), credit is shrinking, and the financial position of SMEs is weak owing to falling domestic demand. Survey results point to weak demand for loans and some further tightening of credit conditions in the last two quarters (banks maintain that good investment projects from SMEs remain rare). But the sector as a whole generates substantial surpluses (8 percent of GDP in Q4 2012). Some large corporations tapped the international market, raising about €2 billion through May 2013 largely to roll over debt falling due, albeit at high yields of around 8 percent (Figure 10).
  • The process of recapitalizing banks is complete, but cleaning up balance sheets is yet to begin (Box 1; Table 5). Private sector participation in the recapitalization was stronger than envisaged (amounting to €3.1 billion, in addition to about €3 billion coming from the recapitalization of subsidiaries by foreign banks that have since exited the country), and three out of the four core banks have retained their private sector management. One small non-core bank also managed to meet its capital needs through private sources and remains operating. On July 12–13, it was announced that the two HFSF-owned bridge banks—TT New Hellenic Postbank and Nea Proton Bank—are being sold to Eurobank.
Table 3.Greece: Monetary Survey, 2010–14
20102011201220132014
Mar-13Jun-13Sep-13Dec-13Mar-14Jun-14Sep-14Dec-14
Proj.
(Billions of Euros)
Aggregated balance sheet of Monetary Financial Institutions (MFIs)
Total assets654.3646.1602.5558.5545.9530.8525.0516.4509.6503.6498.5
Cash (held by credit institutions)2.12.42.52.02.01.91.91.91.91.91.9
Claims on Bank of Greece10.65.13.14.23.43.43.43.43.43.43.4
Claims on other MFIs187.9198.8170.7130.9124.3118.9116.6112.2108.4104.5100.7
Claims (Loans) on non MFIs289.0275.9250.1248.9243.3236.1232.9229.9227.6225.8224.4
Domestic282.5269.5244.8243.6238.2231.1227.9224.9222.6220.7219.4
General government26.322.317.415.315.614.914.914.814.814.814.9
Other sectors 1/256.2247.2227.5228.2222.6216.1213.0210.1207.8205.9204.5
Other countries6.56.45.25.45.15.15.05.05.05.05.0
Securities 2/99.393.0100.499.899.197.697.596.696.195.695.3
Other assets60.365.970.667.868.868.067.967.667.567.667.9
Fixed assets5.05.05.04.94.94.84.84.74.74.74.8
Total Liabilities654.3594.1602.5558.5545.9530.8525.0516.4509.6503.6498.5
Liabilities to Bank of Greece97.876.9121.292.086.181.278.774.871.367.764.1
Liabilities to other MFIs164.0154.4133.2109.3104.799.797.493.489.986.282.6
Deposits and repos of non MFIs282.5237.5225.2227.2222.7220.1219.9219.1219.0219.7220.8
Domestic225.1187.7179.1186.0182.0180.2180.3179.7179.6180.2181.2
Other countries57.449.846.141.240.739.839.639.439.439.539.6
Capital and reserves45.854.856.059.859.258.257.758.158.559.059.6
Banknotes and coins in circulation22.523.724.323.923.523.122.922.922.922.923.0
Other liabilities41.746.842.646.349.748.748.348.248.148.248.4
Money and credit
Broad money232.9199.2188.4193.7190.9189.2189.2189.0189.3190.3191.7
Credit to the private sector 3/4/257.5248.1227.3228.0222.2215.8212.6209.7207.4205.5204.1
Credit to government 3/63.059.128.222.522.021.521.521.421.421.521.5
(Annual percentage change)
Broad money−11.2−14.6−5.31.58.34.70.4−2.4−0.90.61.3
Domestic private sector deposits−12.4−17.0−7.30.98.44.90.3−1.6−1.00.31.0
Credit to the private sector 3/4/0.0−3.1−4.0−3.5−4.2−4.7−5.6−7.9−6.7−4.7−4.0
Credit to government 3/28.32.0−7.9−17.0−18.3−27.5−23.8−4.7−2.4−0.2−0.1
(Percent of GDP)
Broad money104.895.597.2101.1101.3102.5103.3103.4103.6104.0104.4
Domestic deposits101.390.092.597.196.597.798.498.398.398.598.7
Credit to the private sector 4/115.9119.0117.3119.0117.9116.9116.1114.8113.6112.4111.2
Credit to government28.428.414.611.711.711.611.711.711.711.711.7
Memorandum items:(Percent)
Capital to assets5.86.95.75.85.65.65.55.76.06.26.4
Loans to customer deposits103.5117.0111.6110.2108.4106.4105.0104.0102.9101.7100.6
Velocity1.01.01.01.01.01.01.01.01.01.01.0
Sources: Bank of Greece; and IMF staff estimates and projections.

As of June 2010, securitised assets are no longer derecognised from the balance sheet of banks that have adopted the International Accounting Standards. The counterpart of these assets is recorded on the liabilities side as deposit liabilities to non-euro area residents.

Holdings of securities other than shares and derivatives.

Projected growth rates are calculated from differences in outstanding amounts and do not take into account write-offs, valuation changes, or reclassifications.

Credit to domestic non-MFI residents by domestic MFIs excluding the Bank of Greece, including securitized loans and corporate bonds.

Sources: Bank of Greece; and IMF staff estimates and projections.

As of June 2010, securitised assets are no longer derecognised from the balance sheet of banks that have adopted the International Accounting Standards. The counterpart of these assets is recorded on the liabilities side as deposit liabilities to non-euro area residents.

Holdings of securities other than shares and derivatives.

Projected growth rates are calculated from differences in outstanding amounts and do not take into account write-offs, valuation changes, or reclassifications.

Credit to domestic non-MFI residents by domestic MFIs excluding the Bank of Greece, including securitized loans and corporate bonds.

Table 4.Greece: Monetary Financial Institutions (excl. BoG)—Uses and Sources of Funds, 2010–16
2010201120122013201420152016
Proj.
(Billions of euros)
Assets515.3476.9442.2408.1396.2393.9398.2
Cash2.12.42.51.91.92.02.1
Claims on other MFIs87.068.748.336.735.435.335.7
Claims on non-MFIs356.8338.4321.3301.9291.2286.8287.2
General government63.059.128.221.521.522.223.3
Private sector 1/255.8246.8227.1212.6204.1199.6198.5
Corporate116.5113.0100.897.195.395.496.9
Households139.3133.8126.3115.6108.8104.3101.6
Other countries37.932.466.067.865.664.965.4
Other assets69.467.470.067.667.669.873.2
Liabilities515.0476.9442.2408.1396.2393.9398.2
Liabilities to other MFIs66.344.531.735.034.935.937.4
Deposits of non-MFIs280.2232.3218.9214.5215.4223.7236.5
Central government9.04.17.17.26.46.47.2
Private sector213.9178.7166.2168.2169.8175.6184.3
Other countries 2/57.449.545.639.139.141.745.0
Other liabilities26.370.117.226.826.827.729.1
Capital and reserves44.453.153.253.255.058.663.3
Eurosystem liquidity support97.876.9121.278.764.148.131.9
(Percent of GDP)
Assets232.0228.7228.2222.8215.8207.7200.2
Cash1.01.11.31.01.01.01.0
Claims on other MFIs39.233.024.920.019.318.618.0
Claims on non-MFIs160.6162.3165.8164.8158.7151.2144.4
General government28.428.414.611.711.711.711.7
Private sector 1/115.2118.4117.2116.1111.2105.399.8
Corporate52.454.252.053.051.950.348.7
Households62.764.265.263.159.355.051.1
Other countries17.115.634.137.035.734.232.9
Other assets31.232.336.236.936.836.836.8
Liabilities231.8228.7228.2222.8215.8207.7200.2
Liabilities to other MFIs29.821.416.419.119.018.918.8
Deposits of non-MFIs126.1111.4113.0117.0117.3117.9118.9
Central government4.02.03.73.93.53.43.6
Private sector96.385.785.891.892.592.692.7
Other countries 2/25.823.723.521.321.322.022.6
Other liabilities11.833.68.914.614.614.614.6
Capital and reserves20.025.427.529.030.030.931.8
Eurosystem liquidity support44.036.962.543.034.925.316.0
Memorandum items:
Domestic private sector deposit growth (percent)−12.4−17.0−7.30.31.03.44.9
Private credit growth (percent change) 3/0.0−3.1−4.0−5.6−4.0−2.2−0.6
Eurosystem liquidity support (percent of total assets)19.016.127.419.316.212.28.0
Sources: Bank of Greece; and IMF staff estimates and projections.

As of June 2010, securitised assets are no longer derecognised from the balance sheet of banks that have adopted the International Accounting Standards. The counterpart of these assets is recorded on the liabilities side as deposit liabilities to non-euro area residents.

June 2010 reclassification related to liabilities associated with assets disposed of in a securitisation but still recognised on the statistical balance sheet.

Projections do not take into account write-offs, valuation changes, or reclassifications.

Sources: Bank of Greece; and IMF staff estimates and projections.

As of June 2010, securitised assets are no longer derecognised from the balance sheet of banks that have adopted the International Accounting Standards. The counterpart of these assets is recorded on the liabilities side as deposit liabilities to non-euro area residents.

June 2010 reclassification related to liabilities associated with assets disposed of in a securitisation but still recognised on the statistical balance sheet.

Projections do not take into account write-offs, valuation changes, or reclassifications.

Figure 9.Greece: Household Balance Sheet, 2007–13

Sources: Bank of Greece; Eurostat; European Commission; European Central Bank; and IMF staff estimates.

1/ Over past 12 months.

Figure 10.Greece: Corporations Balance Sheet, 2007–13

Sources: Bank of Greece; Bloomberg; Eurostat; European Commission; European Central Bank; and IMF staff estimates.

1/ Financial and nonfinancial corporations.

Table 5.Greece: Core Set of Financial Soundness Indicators for Deposit-Taking Institutions, 2009–13(Percent, unless otherwise indicated)
20092010201120122013
Mar.Jun.Sep.Dec.Mar.Jun.Sep.Dec.Mar.
Core set
Regulatory capital to risk-weighted assets 1/11.912.312.310.610.17.05.78.910.210.211.4
Regulatory tier I capital to risk-weighted assets 1/10.911.211.19.69.25.84.78.19.49.511.1
Nonperforming loans net of provisions to capital37.946.951.266.378.6150.6157.7
Nonperforming loans to total gross loans7.810.511.512.814.716.018.721.622.524.527.8
Bank provisions to nonperforming loans42.046.262.957.149.550.148.348.2
Return on assets (after taxes) 2/−0.1−0.6−0.3−1.7−2.1
Return on equity (after taxes) 2/−1.7−8.8−3.9−27.3−34.2
Interest margin to gross income 2/75.891.082.587.491.793.7100.1106.5123.1103.175.2
Non-interest expenses to gross income 2/57.462.254.156.958.666.172.089.2106.093.987.3
Liquid assets to total assets 3/45.235.234.535.233.232.327.329.330.832.130.7
Liquid assets to short-term liabilities 3/56.946.946.448.250.243.134.037.539.741.941.2
Net open position in foreign exchange to capital 1/4/11.611.312.015.414.515.410.6
Encouraged set
Spread between reference lending and deposit rates (end-of-period, basis points) 5/5.26.47.57.47.37.17.17.1
Customer deposits to total (noninterbank) loans 3/1.31.00.90.80.80.90.90.9
Foreign currency-denominated liabilities to total liabilities 3/10.89.07.77.16.76.56.56.5
Market liquidity
Average bid-ask spread in the securities market (basis points)60.6126.087.2177.0185.0155.0193.0194.0
Households
Household debt to GDP52.160.061.363.866.264.163.766.2
Real estate markets
Residential real estate loans to total loans 3/20.321.122.824.225.025.525.526.0
Memorandum items:
Assets (billions of euros)
Banks440.3465.5412.7376.0383.5383.3389.7389.7
Branches of foreign banks38.336.952.047.642.640.939.112.3
General insurance companies 6/15.615.714.914.314.115.115.415.8
Other credit institutions11.611.411.510.610.912.112.612.9
Deposits (billions of euros)
Banks248.6220.3172.4163.3152.0155.0164.0182.7
Branches of foreign banks21.918.720.920.116.016.718.13.7
Source: Bank of Greece.

Data on a consolidated basis. For end-2011 and 2012Q1, C.A.R. ratios are affected by the PSI and include only the first tranche of €18 billion HFSF recapitalization. In addittion, C.A.R. ratios are affected by the negative supervisory own funds of two banks (ATEbank and TT Hellenic Post Bank).

From 2004 in accordance with IFRS.

On an aggregate resident-based approach (i.e. commercial banks, cooperative banks, and foreign branches).

Based on revised figures from 2002 onwards.

Spread between rate on credit lines and savings deposit rate.

There are no specialised life insurance companies in Greece. General insurance companies offer general insurance and life insurance products.

Source: Bank of Greece.

Data on a consolidated basis. For end-2011 and 2012Q1, C.A.R. ratios are affected by the PSI and include only the first tranche of €18 billion HFSF recapitalization. In addittion, C.A.R. ratios are affected by the negative supervisory own funds of two banks (ATEbank and TT Hellenic Post Bank).

From 2004 in accordance with IFRS.

On an aggregate resident-based approach (i.e. commercial banks, cooperative banks, and foreign branches).

Based on revised figures from 2002 onwards.

Spread between rate on credit lines and savings deposit rate.

There are no specialised life insurance companies in Greece. General insurance companies offer general insurance and life insurance products.

7. Fiscal adjustment is broadly advancing albeit with some slippages (Tables 69), but progress on fiscal institutional reforms has been slow (Tables 1011). These latter reforms are key to enhance the efficiency and effectiveness of the public sector and ensure a more equitable distribution of the adjustment burden.

Table 6.Greece: Modified General Government Cash Balance, 2012–16 1/(Billions of euros)
20122013 (cumulative)201420152016
Mar-13Jun-13Sep-13Dec-13
ActualProg.Proj.
I. State budget
Revenue51.512.022.635.950.849.749.149.8
Ordinary budget (A + B + C - D + E)47.910.320.232.245.645.145.247.0
A. Recurrent revenue49.710.320.632.946.746.347.049.0
1. Direct taxes21.14.28.514.119.519.719.720.2
Income taxes13.32.04.58.111.212.513.114.3
PIT10.01.63.25.67.86.77.07.6
CIT1.70.00.51.01.53.74.04.4
Other1.60.40.81.42.02.12.12.3
Property taxes2.90.71.52.12.93.02.82.8
Tax arrears collection1.81.01.62.12.61.41.51.6
Other direct taxes3.10.40.91.82.92.72.31.6
2. Indirect taxes26.15.611.217.224.423.924.726.0
Transaction taxes15.73.56.910.514.314.014.515.3
VAT15.03.46.610.013.413.313.714.6
Other0.70.10.30.50.90.70.70.8
Consumption taxes9.61.93.96.19.49.29.49.8
Tax arrears collections0.50.20.30.40.40.40.50.5
Other indirect taxes0.30.10.10.20.30.30.30.3
3. Transfers EU0.20.00.10.10.20.20.20.2
4. Nontax revenue2.20.40.91.52.52.42.42.6
B. One-off revenue1.50.30.50.71.20.90.80.8
C. Revenue from concession and rights0.00.00.00.10.10.20.00.0
D. Tax refunds3.30.20.91.82.92.82.82.9
E. Tax Installment Scheme0.00.00.00.20.50.60.30.1
Investment budget3.61.62.43.75.14.63.92.9
A. EU flows3.44.94.43.72.7
B. Own revenues0.20.20.20.20.2
Expenditure67.813.728.743.759.156.156.455.9
Ordinary spending61.313.226.239.552.549.749.449.2
Ordinary primary spending49.111.322.934.146.142.842.241.9
A. Remuneration and pensions20.54.69.313.918.718.318.118.0
B. Insurance and healthcare17.14.28.011.715.313.212.712.4
C. Operating and other expenditure6.41.44.76.96.15.45.35.2
D. Earmarked revenue3.50.93.83.73.94.3
E. Reserve0.00.00.20.60.91.21.21.2
F. Guarantees on entities outside the general government0.10.10.30.40.40.20.20.1
G. EFSF commitment fee0.50.00.10.10.10.10.10.1
H. Spending on military procurement0.40.00.20.50.80.60.80.6
I. Arrears clearance 2/0.5
Interest12.21.93.35.46.46.97.27.3
Investment6.10.52.54.26.76.47.06.7
Balance−16.3−1.7−6.1−7.9−8.4−6.4−7.3−6.0
Primary balance−4.10.2−2.7−2.4−2.00.5−0.11.3
II. Balance local governments0.10.20.30.30.30.70.91.0
III. Balance social security funds0.21.41.41.41.80.8−0.6−0.3
IV. Balance of extra-budgetary funds (ETERPS)0.50.00.10.20.30.20.00.0
VIII. Balance of reclassified public enterprises−0.5−0.1−0.2−0.20.50.80.80.9
X. Modified general government cash balance−15.6−0.1−4.5−6.2−5.5−3.9−6.2−4.4
Unidentified measures0.00.00.00.00.1−0.13.44.1
Modified general government primary cash balance−3.31.8−1.2−0.81.02.94.47.0
Primary spending55.211.825.834.452.749.246.945.7
Memorandum items:
Floor on the modified general government primary cash balance−3.81.5−1.2−0.8−0.32.03.6
Ceiling on primary spending56.813.926.038.853.249.446.3
Sources: Ministry of Finance; and IMF staff projections.

Calculations based on program definitions as outlined in the TMU.

Arrears clearance going forward is modelled below the line.

Sources: Ministry of Finance; and IMF staff projections.

Calculations based on program definitions as outlined in the TMU.

Arrears clearance going forward is modelled below the line.

Table 9.Greece: Financial Balance Sheet (GFSM 2001, stocks), 2008–12 1/(Millions of euros)
20082009201020112012
Stock positions
Net worth
Nonfinancial assets
Net financial worth−221,099−242,350−211,112−153,297−198,700
Financial assets64,41277,23279,47175,756121,573
Monetary gold and SDRs00000
Currency and deposits13,21311,76416,90114,73220,707
Debt securities70274174169314,196
Loans1,5915,2615,4076,2381,243
Equity and investment fund shares29,25639,75737,53334,27065,097
Insurance, pensions, and standardized guarantee schemes3842474849
Financial derivatives and employee stock options00000
Other accounts receivable19,61219,66718,84219,77520,281
Liabilities285,511319,582290,583229,053320,273
Monetary gold and SDRs00000
Currency and deposits7281,5081,005820774
Debt securities213,617248,184190,632104,58678,128
Loans45,91244,81175,193102,921216,240
Equity and investment fund shares00000
Insurance, pensions, and standardized guarantee schemes00000
Financial derivatives and employee stock options2,7369801,3112,1343,536
Other accounts payable22,51824,09922,44218,59221,595
Memorandum items:
Debt (at market value)282,775318,602289,272226,919316,737
Debt at face value285,802323,784351,957373,764325,513
Maastricht debt263,284299,685329,515355,172303,918
Other economic flows
Change in net worth from other economic flows
Nonfinancial assets
Change in net financial worth from other economic flows−5,40515,09355,13577,516−25,729
Financial assets−13,41710,552−2,559−4,071966
Monetary gold and SDRs00000
Currency and deposits48−6740−157−223
Debt securities0000−32
Loans−202−10
Equity and investment fund shares−13,46110,619−2,604−3,9151,220
Insurance, pensions, and standardized guarantee schemes−1−1100
Financial derivatives and employee stock options00000
Other accounts receivable−11221
Liabilities−8,012−4,541−57,694−81,58726,695
Monetary gold and SDRs00000
Currency and deposits0570−10
Debt securities−7,067−3,353−57,241−83,06518,286
Loans6−111668215,508
Equity and investment fund shares00000
Insurance, pensions, and standardized guarantee schemes00000
Financial derivatives and employee stock options−950−1,234−6206572,901
Other accounts payable−10110
Sources: Ministry of Finance; and IMF staff projections.

Calculations based on program definitions as outlined in the TMU.

Sources: Ministry of Finance; and IMF staff projections.

Calculations based on program definitions as outlined in the TMU.

Table 10.Greece: Revenue Collection Process—Issues and Actions
Stage of the revenue collection processIssuesNext Steps
1. Organization and management
An independent revenue administration with modern operating structure and methods.
  • Fragmented tax administration.
  • The General Secretariat for Public Revenues lacks autonomy and power over core business activities and is vulnerable to political interference.
  • Too many local offices lacking central control.
  • Establish the SGPR advisory board; transfer the IAD and the revenue-related departments of GSIS to the revenue administration; identify SDOE’s functions and staff to be transferred to the revenue administration; assign authority to the SGPR to reallocate expenditures across budget lines (July 2013).
  • Issue report on remaining constraints to the delegation of powers to SGPR (early-August) and adopt amending legislation (September 2013); fully staff the Strategic Planning and Financial Control Directorate (end-September).
  • Approve the new organizational structure, staffing numbers, grading system, and classification, and qualification and appointment processes of the revenue administration; transfer the revenue-related functions of SDOE; prepare a 2014-15 business plan for the revenue administration (October 2013).
  • Approve the 2014 revenue administration budget (end-2014).
  • Transition staff to the new organizational structure of the revenue administration (March 2014).
1. Assessment
Tax authorities provide services and support to voluntary taxpayer compliance.
  • Payment of taxes at tax offices.
  • Potentially large tax evasion: about 75 percent of self-employed professionals declaring taxable income below minimum exemption threshold. Unregistered taxpayers.
  • Revise the tax and AML laws to: (i) ensure that the SGPR is represented at the Board of the FIU; (ii) enable the SGPR to obtain from the FIU information on individual tax audits and debt collection cases; (iii) require that information on relevant cases of failure to pay confirmed debt over €50,000 be transmitted to the FIU ; and (iv) require the FIU to promptly inform the SGPR when freezing assets related to laundering proceeds of tax crimes (July 2013).
  • Adopt a new Tax Procedures Code to harmonize, simplify, and modernize tax procedures; and establish a working group to implement the TPC (July 2013); develop a project plan for TPC implementation (August 2013); adopt all highest priority secondary legislation for TPC implementation and modernize the Code of Public Revenue Collection (October 2013).
2. Controls
Tax authorities perform controls and enforce timely filing and payment.
  • Data gathering ad hoc with no central control for monitoring and enforcing compliance.
  • Tax refunds processed with significant delay.
  • Require that all ministries which have a fiscal relationship with taxpayers utilize their identification number for financial transactions with them (July 2013) and make it compulsory for all official transactions (end-2013).
  • Introduce a central agency to consolidate and link all of the different identification numbers now employed across various government agencies (June 2014).
  • Adopt legislation introducing a 90-day deadline for VAT and income tax refund payments; optimize the VAT refund risk analysis system; issue a circular guiding VAT refund audits by local tax offices; introduce a risk analysis system for processing income tax refunds (September 2013).
Audits are performed and taxes due are assessed and collected.
  • Audit workforce not sufficient and low levels of audit coverage of high risk groups.
  • Limited use of indirect methods of assessment.
  • Low collection of assessed taxes.
  • Monitor progress towards achieving performance targets (Monthly performance reports in 2013).
  • Hire 186 external auditors (July 2013) and appoint a team of full-time trainers (September 2013) to complete the basic audit training of auditors and the new external hires by mid-2014.
  • Issue audit reports on more than 15 capital remittance cases based on indirect audit methods (September 2013).
3. Enforcement
Tax assessments under appeal and tax arrears (including penalties and fines) are collected.
  • Poor collection enforcement of taxes and social security contributions.
  • Monitor and publish progress towards achieving performance targets and installment scheme results (Monthly).
  • Create an indirect bank account register to provide authorized revenue administration personnel access to information about bank accounts held by taxpayers; establish the internal review unit; close for new entrants any installment or deferred arrangements for payment liabilities arising from audit assessments (August 2013).
  • Assign 200 staff to the joint collection center for SSC debt (KEAO) (August 2013) and complete external recruitment of 400 recovery officers (end-2013). Adopt secondary legislation for uncollectable SSC debt, create a single SSC debt database, and transfer €4.2 billion of SSC collectable debt to KEAO (August 2013).
Source: IMF staff.
Source: IMF staff.
Table 11.Greece: Spending Process—Issues and Actions
Stages of the Spending Process and IssuesNext Steps
1. Budgeting
Develop a medium-term budget framework and prepare annual budgets within medium-term expenditure ceilings.
  • Budgets prepared mainly in a bottom-up fashion with no hard budget constraints. Budget preparation processes for general government entities still largely disjointed. Responsibility for social security fragmented with no effective preparation, management, and monitoring of social security budget.
  • Modify the organic budget law to introduce: (i) rolling 3-year expenditure ceilings (binding for the first 2 years); (ii) provisions to freeze ex-ante 10 percent of discretionary appropriations; (iii) binding annual budget balance targets for LGs; (iii) performance targets for state enterprises;(v) clarity in treatment of carryover of end-year outstanding commitments; and (vi) penalty procedures to General Government (GG) entities that fail to provide timely reporting to GAO. (October 2013).
  • Adopt legislation to introduce the Fiscal Compact provisions, including a structural balance rule (October 2013).
  • Issue a Joint Ministerial Decision indicating a common methodology for LG budget preparation and budget adoption by year-end and a review process of LG budgets by the Observatory of Local Authorities (July 2013).
2. Spending controls
Ensure that expenditure commitments do not exceed appropriations and arrears are avoided.
  • Line ministries do not check or control expenditure commitments.
  • No central control on incurred commitments by decentralized agencies.
  • Execution of budget releases focused on verifying payments.
  • Adopt legislation to establish permanent procedures for appointment of accounting officers (July 2013).
  • Ensure that commitment registers are in operation in 94 percent of GG entities under the 2013 KPI definition (September 2013).
  • Issue a new interpretive circular responding to GG entities’ queries with a view to eliminating discrepancies in reporting between commitment registers and surveys. (September 2013). Suspend state transfer payments to GG entities that do not report on commitment registries (October 2013).
3. Reporting
Collect and analyze information on payments, pending bills, and arrears.
  • Limited real-time monitoring of arrears and other pending bills.
  • Collection of payment information at non-central government level difficult. Monitoring and reporting of fiscal developments for general government and SOEs.
  • Monitoring and reporting of detailed fiscal data focused on the state budget. No timely in-year monitoring or reporting for general government published. Deviations of general government budget and contingent liabilities not detected on time.
  • Expand the scope of data captured by the General Accounting Office’s e-portal to include the whole expenditure cycle and monitor reporting of the expanded data and ensure that 78 percent of entities report the expanded information (September 2013).
  • Clear past arrears subject to validation of arrears, and compliance with basic PFM reforms and reporting requirements (During 2013).
  • Submit to the Council of State a Presidential Decree to move responsibility for payment execution from tax offices to fiscal audit offices by January 2014 (September 2013).
  • Make changes to IT and administrative processes to authorize electronically payment orders and accompanying documentation and introduce statistical reports to enable follow-up on progress; prepare a medium-term action plan for meeting the requirements of the Late Payment Directive (October 2013).
  • Hellenic Court of Auditors (HCA) and GAO will produce a joint note on the role and scope for streamlining of the HCA’s ex ante audits in financial control (December 2013).
  • Require pension and employment funds, EOPYY, and hospitals to provide monthly reports in accordance with reporting templates agreed with GAO (Monthly reports commence by October 2013).
4. External auditing
Parliamentary oversight and general auditing.
  • Lack of independent oversight of the budget process after dismissal of the Parliamentary Budget Office.
  • Parliament continues to receive periodical reports (During 2013).
  • Strengthen the independence and competence of the Parliamentary Budget Office with a view to establish a fiscal council (December 2013).
  • Conduct focused audits of the commitment registers of SSFs comprising EOPYY, starting with IKA, OPAD, OAEE, TAYTEKO, and ETAA (August 2013), launch a tender for an independent external auditor (September 2013) to complete an audit of EOPYY’s outstanding stock of accounts payable (end-March 2014).
Source: IMF staff.
Source: IMF staff.
Key Changes in Fiscal Projections, 2013–14
Percent of GDPMillions of euros
2013201420132014
Slippage0.50.5925875
Delay in billing of PPC tax for 20130.2−0.2450−450
Non-implementation of solidarity contributions for self-employed0.00.30600
Non-implementation of new wage grid for armed forces0.00.10250
Overrun in spending by EOPYY0.30.3475475
Source: IMF staff estimates and projections.
Source: IMF staff estimates and projections.
  • 2013 fiscal. Fiscal outcomes year-to-date are broadly consistent with program targets. Some current spending overruns and temporary delays in revenue collection owing to extensions of tax declaration deadlines have been largely offset by under-execution of the investment budget. The main risks to the program targets stem from delays in the billing of property taxes (approximate impact of €450 million) and overruns in health spending in the year to date (€475 million on annualized basis)—see text table. (Corrective actions are discussed below.)
  • 2014 fiscal. A preliminary identification of pressure points suggests higher health spending and backtracking on two previous measures—a solidarity surcharge on the self employed (€600 million) and a reform of the wage grid of the military (€250 million)—will contribute to gaps. The identified gaps have been closed with additional measures, but these will be reassessed in the context of the 2014 budget at the time of the next review.
  • Tax administration. There has been some progress in bolstering the autonomy of the revenue administration and in organizational reforms, but new obstacles have emerged (see also ¶22). To improve efficiency, the authorities strengthened capacity at the units for large taxpayers and high wealth individuals, and June key performance indicators (KPIs) show increases in the number of audits and assessed amounts. However, the collection of the assessed amounts still lags the targets, largely because of the continued application of deferred payment schemes. Debt collection has also lagged behind, notwithstanding recent legislative changes to facilitate writing off uncollectable debt so as to focus compliance efforts on collectible debt.
  • Public financial management (PFM) reforms. The expansion of the commitment register has continued, and discrepancies in reporting have declined. About 90 percent of entities with spending above €1 million per year have functioning commitment registers. But significant challenges remain with the clearance of arrears, with local governments and social security funds (SSFs) continuing to face institutional constraints to comply with arrears clearance objectives (see below). As a result, arrears clearance has lagged program goals: according to the program definition, arrears have fallen by only €1.4 billion through May, well short of the targeted reduction of €4.5 billion.
  • Public administration reform. Progress on exits of publicly employed ordinary (or permanent) staff through attrition has been in line with program targets (attrition is subject to the 1:5 rule of hiring 1 new staff for 5 retiring staff). On mandatory exits, which are subject to the 1:1 rule of replacing dismissals with new staff with the requisite skills, the authorities closed the public broadcasting company, ERT, in June. They are opening a smaller, more efficient broadcasting station in its place that could hire back a subset of former ERT staff. But more generally, there have been significant delays and slippages, and the reform effort is well behind schedule. Through end-June, staffing plans were prepared for only 361,000 staff (against 450,000 planned). No employees were shifted into the mobility scheme (compared with a target of 12,500 by end-June 2013) from which mandatory exits were to follow. Moreover, the hiring of contractual staff has overshot with the activation of EU-financed employment programs.

8. Structural reforms are progressing slowly (Table 12).

Table 12.Greece: Implementation of Structural Reforms
MeasuresDescriptionMEFP DeadlineStatus
Labor market
Refocusing the Labor InspectorateThe government completes an independent assessment of the Labor Inspectorate, focusing on effective control procedures to fight undeclared work and to eliminate activities that impose excessive administrative costs for businesses.Dec-12Assessment of the Labor Inspectorate completed by the ILO, and action plan prepared in December 2012.
Minimum wageThe government adopts a mechanism to set the statutory minimum wage (the new system, which becomes effective in 2017, will be legislated by the government after consultation with social partnesr, other stakeholders and independent experts, taking into account the economic and labor market situation and prospects).Mar-13A minimum wage mechanism in line with program commitments is expected to be adopted by end-July 2013.
Sectoral deregulation
Liberalization of regulated professionsThe government takes steps during November and December 2012 to eliminate excessive entry restrictions on the remaining list of regulated professions (removing minimum fee for services and mandatory use of services). Structural benchmark.Dec-12Significant progress made, but restrictions remaining in a number of professions (e.g., engineers and lawyers). These will be addressed during 2013 (See TMU ¶39).
Business environment
Trade facilitationThe government publishes a national trade facilitation strategy to simplify pre-customs and customs procedures, and to increase working shifts in customs (Athens airport and Piraeus port will shift to 24/7 by end-March 2013).Nov-12A national trade facilitation strategy was adopted in November 2012. The working hours for customs were increased in April 2013 to 24/7 in Athens airport, and expanded to two shifts in the port of Piraeus.
Simplification of licensingThe government further simplifies procedures for establishing companies (including streamlining background checks on company founders, and reducing minimum capital requirements in line with best EU practices); and completes the legal framework for the implementation of licensing laws (especially on manufacturing activities and environmental projects).Mar-13Procedures for establishing companies were streamlined in March 2013; the implementation of licensing laws on manufacturing activities and environmental projects has been delayed.
Reduction of case backlog in courtsStarting from end-2012, the government publishes quarterly reports on progress in tax cases backlog reduction, and updates the work plan to reduce the tax case backlog (with priority on cases exceeding €1 million).Dec-12Completed.
The government adopts an action plan to reduce the non-tax case backlog.Jan-13Completed.
Reforming the Code of Civil ProcedureThe government prepares a paper outlining the main proposals for amendments to the Code of Civil Procedure.Mar-13In progress (expected to be completed by end-July).
Source: IMF staff.
Source: IMF staff.
  • The privatization program is behind schedule. While agreement was reached in June to sell the government’s 31 percent stake of Greece’s gas transportation system operator (DESFA) (finalization of the deal is subject to regulatory approvals), there was no bidder for the natural gas company (DEPA). Finalization of the sale of the betting company OPAP awaits regulatory approvals (it is expected to be concluded by end-September). Projections are for sales of about €1½ billion in 2013 (compared to the third review target of €2.5 billion).
  • Progress in liberalizing regulated professions has been slower than targeted, particularly in issuing secondary legislation for a number of professions, reflecting resistance from vested interests (¶39).
  • On judicial reforms, the court case backlog has been reduced (both tax and nontax), and a new Code of Lawyers that eliminates some restrictions and revises the fee structure, is slated for adoption in July. The implementation of the anti-corruption plan and preparation of a draft Code of Civil Procedure have been delayed, however.
  • On labor market reforms, a new minimum wage setting mechanism was adopted (for application after the program period—during the program, the minimum wage is frozen), under which the power to set the statutory minimum wage will be shifted from a non-representative group of employers and unions to the government. This will help to address a significant insider-outsider problem in the labor market.

9. As to program targets, all six end-June 2013 quantitative performance criteria (QPCs) are expected to have been met, although the indicative targets and some structural benchmarks were missed (MEFP Tables 1 and 2). End-June data are available on three QPCs (primary state spending, external arrears, and new guarantees), which were all met. Based on the latest available information, it appears that the three other QPCs (central government debt, general government balance, and domestic arrears) were also met, but final data will be available only at the end of July or early August. The authorities have therefore requested a waiver of applicability for those three QPCs. The missed indicative targets are the ceiling on the stock of domestic arrears (broad definition), privatization receipts, and transfers to the mobility scheme—all of which were subject to delays. Missed structural benchmarks have been either targeted as prior actions or re-phased (MEFP Tables 24), or mitigating actions are being taken.

Discussions

A. Outlook

10. The economic outlook remains broadly unchanged since the last review (Table 13).

Table 13.Greece: Medium-Term Macro Framework, 2012–18
2012201320142015201620172018
Est.Proj.
(Percentage change, unless otherwise indicated)
Domestic economy
Real GDP−6.4−4.20.62.93.73.53.3
Output gap (percent of pot. output)−7.7−10.6−9.5−6.9−4.4−2.7−1.1
Total domestic demand−10.4−5.6−1.11.73.23.12.9
Private consumption−9.1−6.9−1.61.42.21.81.5
Public consumption−4.2−4.0−6.2−4.8−4.03.03.3
Gross fixed capital formation−19.2−4.08.411.314.57.87.4
Change in stocks (contribution)0.00.40.00.00.00.00.0
Foreign balance (contribution)3.72.61.81.20.60.50.4
Exports of goods and services−2.43.04.65.54.74.54.4
Imports of goods and services−13.8−6.4−1.91.22.73.13.2
Unemployment rate (percent) 1/24.227.026.024.021.018.716.3
Employment−8.0−3.70.62.64.02.92.7
Unit labor costs−6.4−6.5−1.6−0.51.81.41.7
Consumer prices (national defintion), period average1.5−0.8−0.40.31.11.21.3
Consumer prices (HICP), period average1.0
GDP deflator−0.7−1.1−0.40.41.11.31.4
Monetary survey
Private credit growth 2/−4.0−5.6−4.0−2.2−0.65.3
Domestic private sector deposit growth−7.30.31.03.44.95.0
Liabilities to the Bank of Greece (billions of euros)121.278.764.148.131.925.6
(Percent of GDP, unless otherwise indicated)
Balance of payments
Current account−3.4−0.8−0.30.10.20.60.9
Structural current account balance−5.9−5.3−4.2−2.6−1.3−0.30.5
Trade balance−2.5−0.11.52.53.03.64.2
Export of goods and services25.427.428.328.728.628.728.9
Export of goods11.412.112.312.312.011.911.9
Exports of services14.015.316.016.416.616.817.0
Imports of goods and services−27.9−27.5−26.8−26.2−25.6−25.1−24.7
Imports of goods−21.5−21.2−20.7−20.2−19.7−19.2−18.8
Imports of services−6.4−6.3−6.1−6.0−5.9−5.9−5.8
Total transfers0.71.81.51.20.90.70.4
Net income receipts−1.6−2.5−3.2−3.6−3.7−3.7−3.6
Net international investment position−114.5−119.2−117.3−111.7−104.6−97.1−89.3
Gross external debt232.5236.6228.9210.9193.6180.2166.6
Private sector capital flows (net)−21.5−3.63.27.54.90.50.8
Public finances (general government)
Total revenues44.142.943.642.442.042.042.0
Total expenditures 3/50.447.046.944.542.742.642.8
Primary expenditures 3/45.442.942.139.437.537.537.8
Overall balance−6.3−4.1−3.2−2.1−0.7−0.6−0.8
Primary balance−1.30.01.53.04.54.54.2
Cyclically-adjusted primary balance2.24.85.96.16.45.64.7
Privatization receipts0.10.91.91.11.11.11.5
Gross debt156.9175.7174.0168.1159.4149.7140.8
Sources: Elstat; Ministry of Economy and Finance; Bank of Greece; and IMF staff projections.

Based on Labor Force Survey.

Projections do not take into account write-offs, valuation changes, or reclassifications.

Includes unidentified measures.

Sources: Elstat; Ministry of Economy and Finance; Bank of Greece; and IMF staff projections.

Based on Labor Force Survey.

Projections do not take into account write-offs, valuation changes, or reclassifications.

Includes unidentified measures.

  • Staff projects a recovery starting in 2014. The latest macroeconomic data are consistent with the projected 4¼ percent GDP contraction in 2013. Given tentative signs of revival, staff projects a gradual reduction in the pace of decline of GDP, followed by a stabilization of economic activity toward the end of the year. This path is predicated on a positive contribution from exports (boosted by tourism) and investment (given the need to replace depreciating capital and in line with private sector expectations), offset by falling private and public consumption (driven by fiscal adjustment and falling household income further straining balance sheets). Over the medium term, the recovery is projected to be driven by the external sector (buoyed by improved competitiveness) and investment.
  • Wages and prices are projected to decline in the near term. Gross wages and salaries are projected to decline by 7 percent this year and 1½ percent in 2014 (for a cumulative decline of over 20 percent during 2010–14), before returning to modest real growth in the medium term. Price dynamics so far this year are consistent with the projected ¾ percent deflation for 2013. In the medium term, inflation should remain below the euro area average, given that the still wide output gap will not close fully until 2020.

Contributions to GDP

(Percent)

Sources: Elstat; and IMF staff projections.

Output Gap

(Percent)

Sources:Elstat; and IMF staff projections.

Wage and Price Inflation

(Year-on-year percent change)
  • External adjustment is projected to continue. With improvements in competitiveness and a stronger contribution from exports, the headline current account deficit is projected to improve to about 1 percent of GDP this year and the structural deficit to about 5½ percent.

CPI-Based REER

(2005=100)

Sources: Bank of Greece; Elstat; and IMF staff projections.

Current Account

(Percent of GDP)

11. Risks to these projections are high, and mainly associated with slippages in structural reforms, balance sheet vulnerabilities, and potential for political instability:

  • Slippages in structural reforms. Productivity gains associated with structural reforms are projected to contribute about 10 percent in cumulative growth over the medium-term (see 2013 Article IV consultation selected issues paper). Slippages would have a significant impact on the speed of recovery, particularly given that gains are expected to be front-loaded, and on potential GDP.
  • Balance sheet vulnerabilities. Stretched balance sheets—particularly in household and SME sectors—create a risk of faster adjustment, with a negative impact on demand and growth. Moreover, public sector debt may also prove to be a hindrance to demand and growth.
  • Potential political instability. The risk of political instability remains acute, especially in light of high unemployment and ongoing social hardship. Further ambitious fiscal adjustment is needed for public sector debt to decline steadily, which exacerbates the possibility of social stress and political resistance.
  • External risks. Continued weak economic performance in the euro area would negatively affect exports and growth. Early exit from exceptional monetary policies in advanced economies would also contribute to tighter financial conditions.

12. Debt is projected to evolve in line with the framework agreed with Greece’s European partners (Appendix I).

  • Public DSA. In view of the unchanged macroeconomic framework, public debt dynamics are similar to the path under the Third Review. After peaking at around 176 percent of GDP this year, debt is expected to decline to 124 percent in 2020, after additional contingent relief measures of about 4 percent of GDP from Greece’s European partners to be determined in 2014–15. In addition, European partners committed to reduce debt to substantially below 110 percent of GDP in 2022, if needed and conditional on Greece meeting its commitments under the program. Risks remain to the downside, however, mainly from lower growth and potential fiscal and privatization slippages.
  • External DSA. External debt should decline gradually as a result of projected improvements in the current account balance and continued reliance on official financing at low interest rates. Risks to external debt sustainability include delayed structural reforms that slow competitiveness improvements, slippages in the privatization program, and larger than expected deflation.

B. Economic Policies

13. The authorities and staff discussed how to keep the program on track. Discussions focused on steps to ensure that the fiscal targets for 2013–14 are met, strengthen social safety nets, modernize fiscal institutions, safeguard financial stability, and make progress on structural reforms to enhance productivity and competitiveness.

Fiscal policy

14. Measures agreed during the first and second review have underpinned a strong fiscal consolidation effort in 2013, albeit with some slippages that required corrective actions. Slippages were smaller than in previous reviews. But the back-loaded revenue profile in 2013 could strain taxpayers in the current economic environment and poses risks to revenue collection. At the same time, the authorities committed to deliver on significant, but necessary, tax policy and revenue administration reforms that will stretch the capacity of the revenue administration. In this context, the authorities and staff agreed on steps to ensure program targets are met and on the strategy to advance rationalization of the tax system with a view to making it simpler and more equitable.

15. The authorities are taking steps to ensure the implementation of the 2013 fiscal target (MEFP ¶5; see also text table). They committed to: (i) a tighter payment schedule of the final installment of the property taxes collected via electricity bills by the public power company (PPC); (ii) bring forward measures agreed in the 1st and 2nd review that were expected to take place in 2014, such as the luxury tax and the fee for lawsuits; (iii) tighten the conditions for claiming deductions for medical spending of individuals; and (iv) complete the memorandum of understanding with ship owners that complements a tonnage tax (see staff report and staff supplement for the first and second reviews). Overspending in the healthcare sector will be reversed through the application of a claw-back mechanism (by September), which is to be followed by more structural measures to reduce prices and demand for services (Box 2; ¶28).

16. The authorities also identified steps to close potential gaps in 2014 (MEFP ¶5). In addition to the claw-back on health overspending and other measures noted above, they committed to close existing schemes for untaxed capital gains reserves. The package of measures will be examined again in the context of the 2014 budget during the next review, as will the necessary measures for 2015–16 in the context of the medium-term fiscal strategy.

Offsetting Measures and Other Savings, 2013–14
Percent of GDPMillions of euros
2013201420132014
Total−0.5−0.5−925−875
“Clawback” imposed on health overspending−0.3−0.3−475−475
MOU on shipowners−0.1−0.1−98−98
2014 measures brought forward−0.10.0−1590
Untaxed capital gains reserves0.00.00−50
Tightening conditions for claiming medical deductions0.00.0−25−50
Shortening of PPC payment period in March, 2014−0.10.1−180180
Revision in yield on special solidarity contribution−0.1−0.1−92−92
Capital gains tax0.0−0.10−120
Other0.1−0.1104−170
Source: IMF staff estimates and projections.
Source: IMF staff estimates and projections.

17. To address contingent fiscal liabilities from the renewable energy sector (RES), the authorities have taken steps to lower debts in the RES account (MEFP ¶9). As of July 1, the tariffs for household consumers were liberalized. The RES Special Levy to meet costs in the RES account is being increased from €9.30 per MwH to €14.96 MwH. These steps are part of a program to eliminate the debt in the RES account by end-2014. They bring average electricity prices in Greece in line with those in the EU, and provide room to start unwinding the cross-subsidization from relatively high industrial tariffs to relatively low household tariffs over time. Fewer distortions and better liquidity flow will also allow the gradual reduction of arrears in the electricity sector.

18. The authorities committed to implementing an ambitious overhaul of the tax system. The changes aim at simplifying the tax regime and codifying policy reforms that were introduced earlier in the year and cover the following areas:

  • Income tax (MEFP ¶6 and 8). The new code clarifies policy changes that were adopted in January 2013 and unifies them with other existing income tax provisions. It also (i) eliminates exemptions for accumulation of special reserves; (ii) simplifies the application of capital gains taxation on equity, bonds, and property transactions; and (iii) streamlines and tightens rules for depreciation and deductions for medical expenditures. Simplifications introduced by the code are a significant step toward overhauling an overly complicated and nontransparent tax system.
  • Tax procedures code (TPC) (MEFP ¶6). The new code simplifies taxpayers’ dealings with the revenue administration through modern registration, filing, payment and collection procedures. It (i) consolidates provisions that were spread over different pieces of legislation; (ii) modernizes the penalties for noncompliance and introduces interest payments in place of surcharges for late payment; (iii) clarifies the revenue collection roles of the revenue administration and specifies clear collection rules; (iv) introduces a new mechanism for internal review of tax disputes; and (v) consolidates provisions on deferred payment and installment arrangements. Following adoption of the code, implementation will require rapidly overhauling IT systems, drafting secondary legislation, and training staff—introduction by the start of 2014 will require concerted effort, as there are considerable risks of slippages in the preparation timeline.
  • Real estate tax (MEFP ¶7; Box 3). The existing PPC levy, which collects real property taxes through electricity bills, is deeply unpopular and sanctioning non-payment by shutting off electricity service has been deemed unconstitutional. A new framework aims at replacing the PPC levy and the existing real-estate-based wealth tax collected by the revenue administration (FAP) with a single state-level property tax in a revenue-neutral way. The new tax will ultimately target properties rather than individuals and will have a broader base—including commercial buildings and land and industrial properties—thereby reducing the tax burden on currently taxed properties. But, as it relies on self-assessment by property owners and increases by 30 times the number of property owners receiving a bill from the revenue administration, staff has considerable concerns regarding the capacity of the revenue administration to implement effectively this overhaul of the property tax system. At a minimum, the administration will need additional resources and tools to follow up on property tax bills that have fallen overdue and a dedicated project management team to design the policy and prepare the groundwork for implementation. This is needed especially since the revenue administration is already tasked with undertaking numerous other major reforms in the coming months related to strengthening its autonomy and operational efficiency, the rollout of the new income tax regime, and the implementation of the tax procedures code. Should it become evident that a shortfall in revenue from the new property tax cannot be overcome through further readjustment of the rate structure, extending the existing property taxes into 2014 may be necessary, modified to take account of concerns about constitutionality.

19. Public administration reform has lagged far behind and the authorities are beginning to address delays:

  • Motivation. Civil service reforms are critical to improve the efficiency and quality of public services, lower the total amount of public sector employment (through attrition) and the public sector wage bill, and bring in young and skilled workers for those whose positions have become obsolete (through exit and the mobility scheme). But, as noted earlier, progress in completing staffing plans and placing public sector employees in the mobility scheme has been very slow.
  • Measures (MEFP ¶11). To bring these reforms back on track:
    • Staffing plans. The authorities committed to catch up by the end of the year and complete staffing plans for all ordinary employees in the general government.
    • Mobility scheme. The authorities agreed to an end-September 2013 target for the mobility scheme of 12,500 employees (a delay of one quarter) and to the full commitment of 25,000 staff in the mobility scheme by end-year. They have also committed to transfer over 4,000 staff to the scheme already in July.
    • Mandatory exits. Of those transferred to the mobility scheme in July, a substantial number (2,000) would be intended for mandatory exit. The authorities maintain the objective of 15,000 mandatory exits from the civil service in 2013–14. In a measure that goes beyond what was agreed previously in the program, they have reduced the maximum time an employee could stay in the mobility scheme from 12 to 8 months. This has the effect of bringing forward the exits in late 2014 to mid-2014. The authorities also committed to eliminate the employment of a substantial share of about 4,000 contractual staff who were using judicial claims to indefinitely extend their contracts.

20. Employment support programs and the social safety nets are being strengthened (MEFP ¶12). To help address the exceptionally high unemployment, with financing from EU structural funds, the authorities launched in July an employment voucher program that supports six-month vocational training and internships for 45,000 unemployed youths. Preparations are also on track to introduce later in 2013 a social community work program that targets about 50,000 individuals from jobless households. To protect vulnerable groups and ensure a fairer distribution of adjustment costs, the authorities are launching a Health Voucher Program that will provide 100,000 long-term uninsured citizens with access to primary healthcare services; and they plan to extend the program further, subject to funding from the European structural funds. Finally, with assistance from the World Bank, they intend to launch in January 2014 a pilot means-tested minimum guaranteed income program, and aim to roll it out nationally by 2015.

Fiscal institutional reforms

21. Discussions focused on accelerating progress on reforms to ensure projected gains from revenue administration materialize and contain spending slippages. At present, there is no evidence that the targeted gains from revenue administration of 0.4 percent of GDP in 2014 (and 1.5 percent of GDP by 2016) will materialize. The authorities’ focus is on organizational and operational upgrades that will deliver results. Regarding measures to contain spending, the authorities recognize that the framework for monitoring and control of spending, especially in the social sector, remains weak, and threatens to undermine fiscal consolidation achievements.

Revenue administration

22. Work is underway, but more is needed to bolster the autonomy of the revenue administration and change organizational structures (MEFP ¶13). The ability of the revenue administration to effectively execute powers transferred to the Secretary General for Public Revenues (SGPR) has been slow to materialize (text table). Civil service constraints to autonomy are proving difficult to overcome. The remaining legislative work includes withdrawing powers of local tax offices and other sub-units of the revenue administration vested by old legislation. Significant challenges to remove interference remain—e.g., in hiring procedures and other daily operations—and the major staff grading overhaul and integration of functions of the special prosecutor for tax evasion into the revenue administration forthcoming in October will test the political commitment to these reforms.

Autonomy in the Revenue Administration Remains a Work in Progress
Desired stateIssues that have arisen recently
Ability to organize sub-units
  • Separate ministerial decisions are required whenever decisions that entail costs need to be taken (thus, constraining the ability of the Secretary General, SG)


  • Legal formalism means the SG’s decisions have uncertain effect
Ability to direct local offices
  • Laws are still in place that provide direct powers to local offices, limiting the power of the SG


  • Extent of delegated powers is still to be clarified
Ability to determine a grading structure
  • Position-based grading is not envisaged by the Ministry of Administrative Reform and e-Governance or MAREG (this is critical for incentives and for matching staff with the right skill mix and positions)
Budget autonomy
  • Flexibility to re-allocate funds is limited
  • Revenue administration has no single budget
Source: IMF staff.
Source: IMF staff.

23. Further steps are also needed urgently to improve the efficiency of revenue administration (MEFP ¶15). Staff remains concerned with the continued granting of tax filing deadline extensions and deferred payment schemes that undermine the payment culture. The authorities agreed to abolish deferred payment schemes and remaining amnesties in advance of the TPC introduction, and to abstain from extensions of tax filing deadlines. They recognized the need to prevent further slippages in debt collection reforms and reforms of the units for large taxpayers and high wealth individuals—or delays in training audit and collection staff—since these would significantly hamper their ability to secure revenue administration gains in the near term. To address problems with debt collection, they agreed to organizational changes at the large debtor unit and across local tax offices and to provide adequate resources for debt collection, thus, supporting recent legislative changes in the procedures to write-off uncollectable debt.

24. Strengthening Anti Money Laundering (AML) procedures would assist in bolstering tax compliance and help fight evasion (MEFP ¶14). Banks have a legal obligation to report customers to the authorities that they suspect of evading taxes. This could significantly step-up revenue collection as banks are well placed to ascertain their customers’ tax evasion practices. However, the level of reporting by banks is still low, and the information does not appear yet to be adequately used by the revenue administration to start and support audits and facilitate debt collection. Adequate supervision of banks to ensure that they implement their legal requirements, and revision of the AML law to streamline the flow and use of information, would go a long way to fight evasion.

25. In light of recent slippages, the authorities are making an effort to improve the collection of social security contributions (SSC) (MEFP ¶17). The allocation of 600 staff on secondment to the joint collection center for SSC debt (KEAO) is welcome, as are the legislative changes to provide legitimacy to KEAO and enforce collection efforts of SSFs. Nevertheless, the efficiency of the new entity is yet to be observed and could be severely constrained by the lack of permanent staff and by delays in identifying collectible SSC debt. A monitoring framework for debt collection agreed with the authorities should help identify and address potential collection bottlenecks in a timely manner.

26. The new tax and SSC installment schemes have been launched (MEFP ¶16). Revenue collected in the initial weeks is modest, but it remains premature to assess participation. Going forward, the authorities can maximize the yield by improving monitoring capacity and focusing on prompt collection enforcement. In the event that participation in the schemes reaches targeted levels, such administrative issues will be particularly challenging and argue for faster implementation of necessary IT changes. The monitoring framework agreed with the authorities will help to identify potential shortfalls quickly.

Public financial management

27. The budget process needs to be strengthened further (MEFP ¶20). The adoption of the 2013-16 medium-term fiscal strategy (MTFS) update early in the year commenced a practice of setting multi-year binding expenditure ceilings for the line ministries and the health sector. It also revealed weaknesses in the existing budget preparation process. The adoption of local government (LG) budgets was delayed well into Q1, causing slippages in arrears reporting and clearance. The calendar for the next budget cycle was also delayed, and a parliamentary discussion of the 2014–17 MTFS framework did not take place in the spring. The authorities have started rectifying these shortcomings, some of which could be addressed with the amendments to the organic budget law. Mandatory budget preparation guidelines for the LGs, jointly issued by the Ministry of Interior and GAO, will strengthen the link between the MTFS and the individual LG budgets. Finally, the authorities have also started preparation, including outreach with the Parliamentary Budget Office, for incorporating a structural budget balance rule with an automatic correction mechanism in the revised organic budget law.

28. Moreover, the authorities and staff agreed that control over general government entities of systemic importance needs to be strengthened (MEFP ¶19 and 22). Continuing lack of consistency in the reporting of entities in the social budget calls for caution in interpreting their reported fiscal outturn. This has become most evident in the case of EOPYY—the health fund created in early 2012—where identifying the size and source of expenditure slippages was hampered by the quality of data provided by the SSFs. While staff and the authorities agreed on a reporting framework for EOPYY, significant improvements in EOPYY’s capacity will be required before a detailed timely reporting framework can be introduced. In the interim, commitments that the authorities have undertaken to prevent shortfalls and improve data quality include: (i) introducing an additional automatic corrective mechanism (a claw-back) that broadens the coverage from pharmaceuticals to diagnostic and private hospital spending and imposes greater scrutiny on EOPYY’s expenditure outturn; and (ii) a tendering procedure for the introduction of in-house financial and analytical cost accounting systems of EOPYY. The authorities are also addressing the quality of reporting on the e-portal from commitment registers of all general government entities by conducting a review of the reporting requirements and preparing a plan to introduce penalties for non-reporting entities.

29. The clearance of arrears has been slow and needs to be accelerated (MEFP ¶21). According to the program definition, the total stock of general government arrears has only fallen by €1.4 billion, from €7.6 billion at end-2012 to €6.2 billion at end-May 2013. This compares with a target stock of arrears at end-June 2013 of €3 billion. Part of the shortfall stems from roughly €700 million accumulation in arrears, over half of which is in the Social Budget. Also, progress in arrears clearance has been obstructed by legal and procedural obstacles: (i) objections to compliance issues in arrears verification by the Hellenic Court of Audit (HCA); (ii) lack of signed memoranda for arrears clearance by some SSFs; and (iii) delays in the adoption of LG budgets. All of these obstacles have recently been addressed.

  • Expenditure arrears. The process will speed up once water companies, much like hospitals earlier in the year, are allowed to receive direct payments on arrears owed to them, accounting for about €0.7 billion of the outstanding stock of arrears. A number of actions have been planned to address delays in payment processes—a major cause of continuing accumulation of arrears—such as mandatory deadlines for each stage, removing the role of local tax offices in the payment process, IT and administrative improvements, and a review of the legal framework. The HCA will also review how the effectiveness of its role in this process can be enhanced. Finally, preliminary audits of the clearance of arrears of EOPYY and five other SSFs will identify weaknesses that hamper accurate reporting and slow down arrears repayment.
  • Tax refund arrears. The new VAT refund risk analysis system encountered a slow start as additional guidelines to staff were needed to ensure smooth implementation. With the deadline approaching for re-defining tax refund arrears as those that have not been paid or rejected within 90 days of a claim being made, the authorities have committed to impose a mandatory 90-day deadline for payment of VAT and income tax refund claims, after which interest to taxpayers will accrue.

Financial sector policies

30. Following the recapitalization of the core banks, discussions and the authorities’ efforts focused on further steps to secure financial stability. In particular, the emphasis was on developing a comprehensive strategy for a four-pillar banking sector, and on completing the sale of two bridge banks (the sale of TT New Hellenic Postbank was originally a structural benchmark for end-January 2013).

31. The authorities and staff discussed the main elements of the banking sector strategy (MEFP ¶24–25).

  • Structure of the banking system. The strategy argues for a system centered around four core banks to maximize funding and operational synergies while avoiding excessive concentration. In line with the strategy, the announced sale of TT New Hellenic Postbank and Nea Proton Bank to Eurobank should bolster the role of Eurobank as a core bank in the system. Besides the core banks, the system will include small non-core banks with niche business models fully backed by private sector capital. The strategy also covers options for the rationalization of the cooperative sector, including the closely linked Panellinia bank, as the final step in the restructuring of the banking sector.
  • Privatization strategy. Staff argued that the partial privatization of Eurobank should occur as early as possible, to guarantee against risks of prolonged state ownership and implied value losses. The authorities committed to such an undertaking by early next year, while taking preparatory steps, such as hiring advisors and inviting potential investors for due diligence earlier. To attract strategic and long-term investors, preferably brand-name foreign banks, to participate, the sale would be structured in a way to allow potential investors to gain controlling stakes in this asset.
  • Addressing any potential capital needs. The strategy discusses some of the modalities that might be used for further capital injections into the banks, if needed.
  • Rationalization of foreign presence. The foreign subsidiaries of Greek banks are fragmented and often of sub-strategic size. The strategy document lays out options in this area, which is an important component of the restructuring plans. The authorities plan to finalize their plans in this regard in consultation with EC/ECB/IMF staff as well as DG-Comp.

32. In view of its evolving role, a review of the functioning of the HFSF is merited. Following the completion of the recapitalization process, the HFSF’s role will evolve into managing its portfolio and its divesture. The authorities agreed that it would thus be timely to review whether the institution has the legal and operational tools necessary to conduct this role effectively, including to safeguard the public interest and financial stability.

33. Progress in strengthening governance in the financial sector continues on many fronts, but further actions are needed (MEFP ¶30). To provide the HFSF’s Executive Board and General Council with adequate legal indemnities, consideration should be given to amending the HFSF law to protect the members as long as their decisions are in line with the long-term interests of the banking sector and taxpayers. Relationship Framework Agreements between the banks and the HFSF were developed to ensure that banks under state control are free of political influence. These have now come into effect.

34. Further steps have been taken to ensure that the system is adequately capitalized.

  • Two core banks have capital shortfalls of around 1 percent of risk weighted assets (RWA) relative to the regulatory minimum. These shortfalls have arisen because of the deterioration in asset quality beyond the projections made in 2011. To rectify these shortfalls, liability management exercises generated a total of €445 million CT1 capital in the two banks. In the unlikely event that these efforts are insufficient, the Bank of Greece will need to ask for further reduction in RWA through faster than envisaged divestment out of non-core assets.
  • The modalities and the scope of the stress test to be conducted by end-year were agreed with the authorities, including the objective to align it as much as possible with the upcoming EBA stress test methodology. The macroeconomic environment has deteriorated significantly compared to the 2012 stress test. Yet, the buffers of around €5 billion in the financial sector envelope, as well as the €3.1 billion participation by the private sector, provide a cushion against such additional capital needs. A final round of liability management exercises has generated an additional capital of just under €0.6 billion, which is retained in the banks. (MEFP ¶26.)
  • Furthermore, the distressed credit operations review of the banks to be completed by end-September will identify improvements needed in banks’ procedures for recovery of these assets, which could ultimately reduce capital needs. (MEFP ¶32.)

35. Much remains to be done to facilitate the clean-up of bank balance sheets (MEFP ¶31–32). Greek banks face several challenges in dealing with the large stock of NPLs: legal and judicial weaknesses (moratoria on auctioning collateral, seniority of state claims over banks’ claims, and long waiting times for court appointments); the break-down of the real estate market; and the potential lack of human and administrative resources. Initial steps have been taken to improve the effectiveness of NPL resolution activities by updating the household insolvency law and introducing the “Facilitation Program,” a medium-term forbearance scheme for over-indebted households. Further steps are needed, including enhancing debt enforcement and collateral recovery and designing an effective out-of-court restructuring mechanism. An inter-agency working group is being set up in July 2013 to identify key bottlenecks and propose concrete steps for enhancements by end-October 2013.

36. Steps taken to improve the management of assets under liquidation are broadly sufficient, but further work would be beneficial (MEFP ¶29). The resolution of several banks has resulted in over €8 billion of non-performing assets under liquidation. The Bank of Greece has amended laws and regulations to enhance recovery from these assets. These enhancements include a new mandate to restructure loans and employ services of collection companies, which have so far resulted in significantly improved collections. Their efficiency and effectiveness could be strengthened, e.g., by consolidating assets into central pools for management under a liquidation company or outsourcing the collections’ process to banks.

37. The government intends to establish the Institution for Growth (IfG) to alleviate potential financing gaps for SMEs and infrastructure projects (MEFP ¶33). While acknowledging the potential benefits of easing credit constraints for SMEs, staff expressed concerns that such institutions in Greece had in the past been associated with a high share of non-performing loans and costs to the budget. The authorities, however, were convinced that such risks would be minimized, including by putting in professional management, working with the EIB and the KfW from Germany, limiting the government’s exposure and the level of loan guarantees of the IfG to be equivalent to its equity participation of €350 million, through lending only at market terms, and by not allowing deposit taking. To ensure that the financing of the IfG is indeed additional money to the economy that could not have been provided by the domestic banking system, the latter will not be participating in the IfG’s equity or funding plans.

Structural reforms

38. The focus on structural reforms in this review was limited, and an in-depth assessment of privatization will be taken up in the next review. The implementation of structural reforms has been slow and needs to be accelerated. Further steps were agreed in this review to open up regulated professions, liberalize further trade and transportation sectors, improve the functioning of the judicial system, and strengthen the anti-corruption framework (Table 14). For the remainder of 2013, the structural reform agenda is focused on lowering regulatory barriers to competition, easing the administrative burden on businesses, and reducing further excessive labor entry/exit costs.

Table 14.Greece: Selected Structural Reforms Ahead, 2013–14
MeasuresMEFP

Deadline
DescriptionMacroeconomic Implications
Labor market
Reducing tax wedge on laborSep-13 and Nov-13The government completes by September 2013 actuarial studies on social security funds, and adopts a plan by November 2013 to reduce the employer share of social security contributions by 5 ppt (in a budget-neutral way and phased manner during 2014-16) by broadening the base for social security contributions; simplifying the contribution schedule across various funds; and phasing out nuisance taxes.Improves competitiveness, and promotes employment and growth.
Reduce entry/exit costsDec-13The government completes by November 2013 a study comparing Greece’s regulations on temporary employment, scope for temporary employment agencies, and collective dismissal rules and procedures with those in other in other EU member states, and adopt by end-2013 reforms to bring the legal and regulatory framework in these areas in line with EU best practices.Improves competitiveness, and promotes employment and growth.
Product and service markets
Liberalization of regulated professionsJul-13Adopt a new Code of Lawyers, which will include removal of exclusivity for lawyers for the research of mortgage books and land registry.Fosters competition, lowers intermediate costs and promotes investment and growth.
Jul-13Complete a study of the 20 largest professions examining the degree to which they have been liberalized, including results with respect to new entrants and price changes.
H2-13Liberalize the remaining list of regulated professions (TMU ¶39).
Transportation servicesOct-13Adopt additional steps to increase the flexibility of labor arrangements and reduce manning obligations in the domestic shipping industry.Fosters competition, improves price flexibility and competitiveness.
Retail tradeJun/Jul-13Adopt legislation to liberalize further the retail market, including: removing restrictions against discount sales outside sale periods; increasing flexibility in retailers’ opening days; and replacing the current system of fixed margins for over-the-counter drugs with maximum margins.Fosters competition, improves price flexibility and competitiveness.
Sep-13Government to allow the sales of selected over-the-counter products in other points than pharmacies.
Product market liberalizationSep-13Based on OECD findings, Government to prepare draft legislative amendments aimed at reducing regulatory barriers to competition for construction materials, machinery and food processing industries, and tourism sector.Fosters competition, improves price flexibility and competitiveness.
Dec-13Government to propose legislative amendments to reduce administrative burdens in 13 key sectors based on the findings of the OECD Standard Cost Model.
Business environment and judicial reform
Trade facilitationJul-13Increase the working shifts to 24/7 in the Athens airport, and expand service to two shifts in the Piraeus port for imports.Reduces input costs.
Nov-13Adopt risk-based audits for imports in line with EU practices.
Reduction of case backlog in courtsNov-13 Jul-13Adopt e-custom system (allowing for electronic submission and e-signature) for imports. Government to present to EC/ECB/IMF a first assessment of the operations of the magistrates’ courts.Improves efficiency of courts.
Sep-13Reallocate judges to the administrative courts with the highest backlog, and adopts an action plan to reduce civil and commercial cases backlogs, including draft legislation providing for compulsory mediation of small claims.
Reforming the Code of Civil ProcedureMar-14Adopt a new Code of Civil Procedure.Improves system efficiency.
Anti-corruption
Anti-corruption legislation and action planJul-13Prepare draft legislation to bring anti-corruption legal framework in line with relevant international standards, and start the implementation of all outstanding anti-corruption actions.Reduces informal market transactions.
Source: IMF staff.
Source: IMF staff.

39. The authorities committed to liberalize further regulated professions in 2013 (MEFP ¶34). Excessive restrictions were eliminated for a number of professions. Although well behind schedule, the authorities plan to remove by end-year excessive restrictions in the area of exclusive and shared reserved activities for engineers (24 professions). They have also committed to adopt secondary legislation during the course of 2013 for the remaining list of professions for which the liberalization has started but is not yet complete (TMU ¶39). To ensure that de jure liberalization delivers the intended results, the authorities and staff agreed to monitor continuously and evaluate developments (including price changes and new entries) and address promptly any remaining restrictions identified by an ongoing assessment of reforms undertaken in this area (these will be discussed at the next program review).

40. The authorities acknowledged the need to accelerate progress in promoting competition and reducing the administrative burden (MEFP ¶35).

  • Reducing red tape. Two ongoing in-depth studies, with OECD assistance, have identified a large number of regulations that give rise to excessive barriers to entry, limit the ability and incentives of suppliers to compete, and restrict the choices and information available to consumers. Targeted recommendations to address these barriers are expected in September and will be discussed at the next review, based on which reforms will be adopted by end year.
  • Attracting investments. Progress on streamlining Greece’s complex investment licensing system remains slow. Following a recent extensive review on licensing requirements to open a new business, the authorities committed to overhaul the existing system over the next two years, with assistance from the World Bank, by shifting from a license processing and approval mechanism to a self-compliance system based on established standards.
  • Liberalizing product and service markets. To reduce input costs and help lower consumer prices, the authorities are taking steps to further liberalize the retail sector (by replacing the fixed margins for over-the-counter products sold in pharmacies with maximum ones, and increasing the flexibility of retailers’ opening days), and reduce costs for ferry services (by streamlining mandatory ticket discounts). Going forward, the authorities plan to adopt by end-August 2013 a law to liberalize long-distance bus services (with secondary legislation to follow in 2014), and allow by end-September 2013 the sale of selected OTC products outside pharmacies.
  • Facilitating trade. Greece continues to lag behind peers on the administrative burden of external trade declarations, and in customs clearance and handling procedures. To that end, the authorities remain committed to extend to imports reforms recently undertaken to facilitate exports, including: (i) the longer opening hours in the Athens airports and the Piraeus port by end-July; and (ii) the electronic submission system for trade declarations by end-November. In addition, the authorities plan to align the customs risk assessment system with best practices in EU Member States by end-September 2013 for exports, and by end-January 2014 for imports.

41. Following earlier labor market reforms that have facilitated wage adjustment, the authorities are focusing on reducing non-wage costs and rigidities (MEFP ¶36). Labor reforms so far under the program on collective bargaining and the minimum wage have helped firms to better align pay with productivity, and increased incentives to hire young workers (who suffer from the highest unemployment rate in Europe). The reduction in the redundancy notification period and severance pay has also reduced excessive labor exit costs. However, employment protection rules in Greece remain very rigid (especially on collective dismissals). To facilitate labor reallocation and attract investments, the authorities plan to adopt by end-2013, in consultation with the social partners, an appropriate set of reforms in this area. These issues will be taken up in the next review.

42. Privatization is behind schedule (MEFP ¶38). To catch up and bring the program back on track by mid-2014, the tender of DEPA (the natural gas company) is to be re-launched as soon as possible. Further, the authorities will press ahead with the sale of other assets, and increase the stakes of the ports to be tendered while accelerating the process. The pricing policy for the water companies will be issued in July, which will pave the way for their tender, and a further 250 real estate assets were transferred to the HRADF. To facilitate the sale of the water companies, the authorities will issue necessary legal acts to allow the Treasury to pay arrears to the water companies from the arrears clearance program on behalf of the local governments (with a compensatory reduction in transfers to the local governments). As next steps, a comprehensive assessment of privatization will be undertaken in the context of the fifth review, including an assessment of whether any changes are needed in the structure and governance of the privatization program to improve its effectiveness. To advance with the sale of problematic assets, the government has announced the restructuring or liquidation of three loss-making companies, to be completed by year-end. This will release for sale the marketable portion of their assets, shifting these into more productive use, and capping the fiscal costs of these entities.

Program Modalities

Program Monitoring

43. The authorities will implement nine prior actions to set the stage for Board consideration of the fourth review (MEFP Table 3). These measures are geared to ensure that the program remains on track towards achieving its objectives:

  • Restoring fiscal sustainability. Prior actions cover: (i) the adoption of a package of measures to implement the fiscal strategy for 2013–14 (MEFP ¶5); (ii) the adoption of legislation to reform the income tax code and submission to parliament of the tax procedure code (MEFP ¶6); (iii) the adoption of steps to eliminate the debt (contingent fiscal liability) in the RES account (MEFP ¶9); and (iv) the issuance of all necessary legal acts that would place at least 4,200 ordinary (permanent) employees in the mobility scheme (MEFP ¶11).
  • Strengthening fiscal institutions. Prior actions cover: (i) the issuance of ministerial decisions for the transfer to the revenue administration of functions, staff, and budget allocations of several departments previously under the ministry of finance (MEFP ¶13); and (ii) the adoption of legislative amendments to close—effective August 1, 2013—for new entrants any installment or deferred arrangements for payment of liabilities arising from audit assessments other than the Fresh Start and basic installment schemes (MEFP ¶15).
  • Preserving financial stability. Prior actions cover: (i) the completion of the sale of the two bridge banks, New Hellenic Postbank and Nea Proton Bank (MEFP ¶24); and (ii) the completion of a comprehensive banking sector strategy centered on a system of four viable core banks (MEFP ¶25).
  • Supporting privatization. A prior action covers steps to remove obstacles in the long-delayed privatization program (MEFP ¶39).

44. Proposed revisions to program quantitative targets will support the ongoing process of public administrative reforms and privatization (MEFP Table 1). In view of significant delays in placing workers into the mobility scheme, the targets have been revised, while still preserving the end-2013 totals, and a new indicative target is proposed for the number of employees in the mobility scheme who will eventually exit. Meanwhile, the timeline for mandatory exits in 2014 has been front-loaded. Moreover, the end-September performance criterion on privatization has been reduced from €1.8 billion to €0.9 billion. This reduction reflects the failed tender of the natural gas company, DEPA, which will be re-tendered with the expected sale pushed back to 2014. To achieve the revised performance criterion will require finalization of the sale of the OPAP betting company and national lottery, which remain subject to regulatory approvals.

45. New structural benchmarks have been established and an existing benchmark has been re-phased (MEFP Table 4):

  • To preserve financial stability, by end-September 2013 (re-phased from end-July), banks are required to update their restructuring plans and submit them for validation to DG-Competition (IMF Country Report No. 13/20 MEFP ¶23).
  • To secure fiscal sustainability: (i) by end-September 2013, legislation will be adopted to establish a new property tax regime (MEFP ¶7); (ii) by end-October 2013, secondary legislation will be adopted to implement the tax procedures code (MEFP ¶6); and (iii) end-September targets were established for key performance indicators on revenue administration (MEFP ¶18) and public financial management (MEFP ¶23).

46. Program reviews will continue on a quarterly basis (Table 15). The fifth review under the program is scheduled to take place on or after September 29, 2013. This is unchanged from the phasing approved by the Board at the last review, and provides an opportunity to review the program again in light of any short-term developments before end-September data become available. In the event that delays in completing program reviews persist, however, the program will need to be re-phased in the context of future reviews. Issues that will be covered in the forthcoming review include (in addition to other applicable program conditions): (i) review the macroeconomic framework, in particular the growth outlook to take account of progress in structural reforms relative to program assumptions; (ii) the 2014 budget and 2014–17 MTFS; (iii) passage and implementation of a new real estate tax; (iv) evaluating progress on privatization and the possible need for changes in the privatization process and structures to address repeated delays; (v) assessing progress in revenue administration reforms to support the fiscal program; and (vi) securing adequate financing at least through end-2014.

Table 15.Greece: Schedule of Proposed Purchases under the Extended Arrangement, 2012–16
ReviewAvailability DateActionPurchasesTotal Disbursements
Millions of SDRsPercent of quotaBillions of euros 1/
March 15, 2012Board approval of EA1,399.1127.01.6
First ReviewMay 31, 2012Observance of end-December 2012 performance criteria, completion of first and second reviews 3/
Second Review 2/August 31, 2012Observance of end-December 2012 performance criteria, completion of first and second reviews 3/2,798.2254.03.3
Third ReviewFebruary 28, 2013Observance of end-2012 performance criteria, completion of third review 4/1,506.8136.81.8
Fourth ReviewJuly 25, 2013Observance of end-June 2013 performance criteria, completion of fourth review1,506.8136.81.8
Fifth ReviewSeptember 29, 2013Observance of end-June 2013 performance criteria, completion of fifth review1,506.8136.81.8
Sixth ReviewNovember 30, 2013Observance of end-September 2013 performance criteria, completion of sixth review1,506.8136.81.8
Seventh ReviewFebruary 28, 2014Observance of end-December 2013 performance criteria, completion of seventh review1,506.8136.81.8
Eighth ReviewMay 31, 2014Observance of end-March 2014 performance criteria, completion of eighth review1,506.8136.81.8
Ninth ReviewAugust 31, 2014Observance of end-June 2014 performance criteria, completion of ninth review1,506.8136.81.8
Tenth ReviewNovember 30, 2014Observance of end-September 2014 performance criteria, completion of tenth review1,506.8136.81.8
Eleventh ReviewFebruary 15, 2015Observance of end-December 2014 performance criteria, completion of eleventh review1,506.8136.81.8
Twelfth ReviewMay 31, 2015Observance of end-March 2015 performance criteria, completion of twelfth review1,506.8136.81.8
Thirteenth ReviewAugust 31, 2015Observance of end-June 2015 performance criteria, completion of thirteenth review1,506.8136.81.8
Fourteenth ReviewNovember 30, 2015Observance of end-September 2015 performance criteria, completion of fourteenth review1,506.8136.81.8
Fiftheenth ReviewFebruary 29, 2016Observance of end-December 2015 performance criteria, completion of fifteenth review1,506.4136.81.8
Total23,785.32,158.828.0
Source: IMF staff projections.

Exchange rate of January 5, 2012.

Purchases and disbursements sum the total available upon completion of the first and second reviews.

End-December 2012 performance criteria became controlling for the purchase that was made upon completion of the first and second reviews in January, 2013. A waiver of applicability of these performance criteria was requested due to the lack of information on performance as of end-December.

End-March 2013 performance criteria became controlling for the purchase that was made upon completion of the third review in May 2013.

Source: IMF staff projections.

Exchange rate of January 5, 2012.

Purchases and disbursements sum the total available upon completion of the first and second reviews.

End-December 2012 performance criteria became controlling for the purchase that was made upon completion of the first and second reviews in January, 2013. A waiver of applicability of these performance criteria was requested due to the lack of information on performance as of end-December.

End-March 2013 performance criteria became controlling for the purchase that was made upon completion of the third review in May 2013.

Exceptional access criteria, financing assurances, and capacity to repay

47. The program continues to satisfy the substantive criteria for exceptional access but with little to no margin (Box 4). Delays in the implementation of structural reforms raise concerns about the capacity of the authorities to implement the program in a difficult political environment. Nevertheless, the additional efforts undertaken by the authorities in the form of strong prior actions mitigate these concerns and allow the program to satisfy the criteria for exceptional access, albeit with little to no margin. The continued commitment of euro area member states to support Greece, including by providing additional official financing to fill future financing gaps and through further debt relief as necessary, is an essential part of meeting the criteria.

48. Financing assurances are in place for the fourth review (Table 16 and 17). The program is fully financed through July 2014, but a projected financing gap will open up in August 2014. Thus, under staff’s current projections, additional financing will need to be identified by the time of the fifth review, to keep the program fully financed on a 12-month forward basis. The Eurogroup has initiated discussions on how to eliminate the projected financing gaps. In this regard, the Eurogroup’s commitment in February and November 2012 to provide adequate support to Greece during the life of the program and beyond, provided that Greece fully complies with the program, is particularly important.

Table 16.Greece: General Government Financing Requirements and Sources, 2012–16(Billion of euros, unless otherwise indicated)
20122013201420152016
Proj.
Gross borrowing need111.035.326.214.48.3
Overall balance (accrual)12.56.95.63.71.2
Amortization9.316.125.116.46.8
Medium and long-term (non-official)12.711.017.77.83.7
Short-term (net)−3.43.40.00.00.0
Official creditors0.01.77.48.63.1
IMF0.01.77.48.63.1
EC0.00.00.00.00.0
Other89.212.2−4.5−5.70.4
Bank recapitalization41.07.20.00.00.0
PSI-related costs34.50.00.00.00.0
Arrears clearance7.50.00.00.0
Privatization−1.6−3.5−2.0−2.2
ECB related income (SMP and ANFA)−2.7−2.5−2.0−1.7
Other13.71.91.4−1.74.2
Gross financing sources110.935.321.87.98.3
Market access0.00.00.00.00.0
Official financing (including disbursed and committed)109.937.419.311.16.6
EC bilateral loans/EAMS108.227.98.50.00.0
EC interest deferral0.92.04.04.8
IMF1.68.68.97.11.8
Deposit financing1.1−2.12.5−3.21.8
Financing gap0.00.04.46.50.0
Memorandum Items:
Total Maastricht debt303.9322.5320.1319.7318.0
Of which:
Official creditors183.6219.3235.7244.7248.2
IMF22.329.230.729.227.9
(percent of quota)29.22249.72363.72248.22148.1
EAMS161.3190.1205.0215.5220.3
Private sector120.6103.280.064.158.9
Unidentified official financing/market access0.00.04.410.910.9
Total Maastricht debt (percent of GDP)156.9175.7174.0168.1159.4
Of which:
Official creditors94.8119.5128.1128.7124.4
IMF11.515.916.715.314.0
EAMS83.3103.6111.4113.3110.5
Private sector62.356.243.533.729.5
Unidentified official financing/market access0.00.02.45.75.5
Sources: Ministry of Finance; and IMF staff projections.
Sources: Ministry of Finance; and IMF staff projections.
Table 17.Greece: External Financing Requirements and Sources(Billions of euros, unless otherwise indicated)
201020112012201320142015201620172018
Proj.
Gross financing requirements216.2239.0205.6179.4141.0123.999.784.474.5
Current account deficit22.520.66.51.40.6−0.1−0.4−1.3−2.0
Medium and long-term debt amortization22.735.517.514.219.517.78.99.16.7
Public sector15.622.510.611.116.514.75.86.13.8
Of which: EC/IMF0.00.00.01.77.48.63.10.72.2
Banks6.710.75.61.21.21.21.21.21.0
Other0.32.31.41.91.81.81.81.81.8
Short-term debt amortization171.1182.9181.5163.8120.9106.391.376.569.8
Public sector and Bank of Greece57.288.2106.599.857.342.726.710.53.5
Bank of Greece 1/49.087.1104.898.455.941.325.39.11.3
Public sector8.21.21.81.41.41.41.41.42.1
Banks 2/113.293.474.463.062.762.863.865.265.4
Other0.61.30.61.00.80.80.80.91.0
Source of financing184.7197.495.7142.0117.3106.393.179.068.7
Capital account (net)2.12.72.34.63.53.23.33.32.8
Foreign direct investment (net)−0.9−0.52.31.63.01.92.02.12.9
Equities (net)−2.3−0.2−0.20.00.10.61.11.31.3
Assets drawdown (- increase)21.712.4−43.311.47.014.08.40.50.1
New borrowing and debt rollover164.1183.5135.3124.4103.786.578.471.961.6
Medium and long-term borrowing−18.82.0−28.53.5−2.7−4.81.82.02.8
Public sector 3/−5.7−3.1−31.61.7−4.4−6.50.00.00.0
Banks−12.33.80.00.00.00.00.10.31.0
Other−0.81.23.11.71.71.71.71.81.8
Short-term borrowing182.9181.5163.8120.9106.391.376.569.858.7
Public sector and Bank of Greece88.2106.599.857.342.726.710.53.5−8.0
Bank of Greece 1/87.1104.898.455.941.325.39.11.3−10.7
Public sector 4/1.21.81.41.41.41.41.42.12.7
Banks 2/93.474.463.062.762.863.865.265.465.7
Other1.30.61.00.80.80.80.91.01.1
Other0.1−0.6−0.80.00.00.00.00.00.0
Program financing31.541.5109.937.419.311.16.65.45.8
Of which: interest deferral0.00.92.04.04.85.45.8
Unidentified official financing / market access0.00.00.00.04.46.50.00.00.0
Sources: Bank of Greece; Bloomberg; and IMF staff estimates and projections.

Includes liabilities to Eurosystem related to TARGET.

Includes currency and deposits and securitized loans.

Actual figures on public sector medium and long-term borrowing are based on non-residents amortization figures provided by GAO and net flows from the balance of payment statistics provided by Bank of Greece. Negative sign indicates debt buybacks.

Includes government deposits’ build-up (regardless of currency denomination for presentational purposes).

Sources: Bank of Greece; Bloomberg; and IMF staff estimates and projections.

Includes liabilities to Eurosystem related to TARGET.

Includes currency and deposits and securitized loans.

Actual figures on public sector medium and long-term borrowing are based on non-residents amortization figures provided by GAO and net flows from the balance of payment statistics provided by Bank of Greece. Negative sign indicates debt buybacks.

Includes government deposits’ build-up (regardless of currency denomination for presentational purposes).

49. The staff’s assessment of Greece’s capacity to repay the Fund has not changed (Table 18). The macroeconomic outlook, debt service to the Fund, and peak access remain broadly unchanged. Euro area member states remain committed to an official support package that will help keep debt on a sustained downward path as long as Greece adheres to all program policies. Therefore, capacity to repay the Fund also depends on the authorities’ ability to implement in full an ambitious program. It continues to be the case that if the program were to go irretrievably off-track and euro area member states did not continue to support Greece, the capacity to repay the Fund would likely be insufficient.

Table 18.Greece: Indicators of Fund Credit(Millions of SDRs, unless otherwise specified)
201220132014201520162017201820192020202120222023202420252026
Prospective drawings (4-year EFF)1,3998,8256,0276,0271,506
Percent of quota127801547547137
(Projected Debt Service to the Fund based on Existing and Prospective Drawings)
Amortization01,4726,2787,2992,6107181,9552,9603,8393,9643,8483,2472,0091,004126
SBA01,4726,2787,2992,4930000000000
4-year EFF00001177181,9552,9603,8393,9643,8483,2472,0091,004126
Interest and service charge5044801,0079609108598107185864262651142881
Total debt service5041,9527,2858,2593,5201,5762,7663,6784,4254,3904,1133,3622,0371,013127
Percent of exports of goods and services1.24.616.517.87.33.15.16.57.57.26.45.03.01.40.2
Percent of GDP0.31.34.75.12.10.91.51.92.22.11.91.50.90.40.0
(Projected Level of Credit Outstanding based on Existing and Prospective Drawings)
Outstanding stock18,94126,29426,04424,77223,66922,95120,99618,03614,19810,2336,3863,1391,1301260
Percent of quota1,7192,3872,3642,2482,1482,0831,9061,6371,289929580285103110
Percent of GDP11.516.916.715.314.012.911.39.27.04.82.91.40.50.10.0
Memorandum items:
Exports of goods and services (billions of euros)495052555760636669727679818487
GDP (billions of euros)194184184190199209219230240249259269280291302
Euro/SDR rate 1/1.177
Quota (millions of SDRs)1,102
Source: IMF staff projections.

Program exchange rate (see TMU).

Source: IMF staff projections.

Program exchange rate (see TMU).

Staff Appraisal

50. The economy continues to rebalance apace, but sustainability concerns remain because of the slowness of reforms. The fiscal adjustment remains exceptional by any international standard and the external competitiveness gap continues to narrow steadily. However, the reform effort is still not commensurate with the problems facing Greece, and the rebalancing is mainly a result of downward pressures on wages coming from the deep and socially painful recession. To avoid further across-the-board cuts in wages and pensions, and to assure that the recession gradually bottoms out and gives way to a steady recovery in 2014, it is essential that structural reforms gain much stronger support and momentum.

51. The ambitious 2013 budget is being implemented largely as planned. The authorities are taking corrective actions to ensure that they meet the fiscal targets and achieve at least a zero primary balance this year. The cyclically-adjusted fiscal adjustment of 15 percent of GDP and the tolerance of the associated hardship during the last three years is evidence of the determination of Greece to stay within the euro area.

52. But achieving the significant fiscal adjustment still ahead in a socially acceptable manner is unlikely to be possible without much deeper public sector reforms. The authorities face three immediate challenges in this regard:

  • First, while much progress has been made in modernizing revenue administration, significant problems remain. They include the susceptibility to political interference because of the still insufficient autonomy of the revenue administration and the negative impact on the payment culture of the repeated extensions of filing deadlines, modifications to deferred payment schemes, and suggestions of tax amnesties. While it was assumed from the outset that gains from revenue administration reforms would take time to materialize, Greece has now reached the stage where such reforms are expected to begin contributing significantly to the adjustment effort. Unless the authorities tackle the problems of revenue administration with much greater urgency in the coming months, a credible 2014 budget would again need to be centered on painful expenditure cuts.
  • Second, staff has considerable doubts about the authorities’ ability to put in place a system for real estate taxation in the coming months that could replace already from 2014 the current system without significant loss of revenues. Achieving high compliance rates will be a major challenge, given that collection will be reliant on self-assessment in a culture where tax compliance has been particularly poor. Thus, while the current practice of collecting taxes through the electricity bill is clearly not a permanent solution, the authorities should consider extending this scheme, modified to take account of concerns about constitutionality. Here too, failure to take action would suggest the need for a much greater reliance on expenditure measures in 2014 than currently envisaged by the authorities, including potentially targeted cuts in socially sensitive areas.
  • Third, despite the much publicized closure of the state-owned public broadcaster, ERT, progress in public administration reforms remains particularly disappointing. Staff takes note of the authorities’ assurances that recent changes in the oversight of public administration reforms signal a much stronger political determination to advance such reforms, and new initiatives in this area are encouraging, including proposals to resolve the problem of de facto permanent contractual employees. However, staff is concerned that the focus is shifting significantly away from ensuring exit of redundant or unqualified staff to reallocation of such staff within the public sector. The reliance on attrition to bring about the necessary downsizing of the public sector is not credible unless the government creates room to hire new staff to fill expert positions.

53. A stronger determination is also needed to support structural reforms more broadly. While this was not a main focus of the current review—it will be central to the next one—progress on privatization remains painfully slow, both in terms of asset preparation and financial results, raising concerns about the effectiveness of the privatization strategy. With sales delayed into next year, the end-2013 objectives will be missed. Regulatory and institutional constraints need to be overcome to bring assets to the point of sale, and uncertainty in this process reduces the attractiveness of assets for potential buyers. More importantly, political constraints and interference remains a serious obstacle. If delays continue taking on a systemic character, then governance changes to the privatization fund would need to be considered in the context of the next review.

54. The authorities have completed critical steps in safeguarding financial stability. They have recapitalized the core banks and, in the context of the review, are completing the sale of the bridge banks and further enhancing the viability of one of the weaker core banks in line with their strategy for a four-pillar banking sector. Going forward, rebuilding a robust financial system, cleaning up balance sheets, and ensuring strong governance structures remain key challenges.

55. As noted in the third review staff report, debt sustainability concerns continue to remain a risk. If investors are not persuaded that the policy for dealing with the debt problem is credible, investment and growth will be unlikely to recover as programmed. The commitment of Greece’s European partners to provide debt relief as needed to keep debt on the programmed path remains, therefore, a critical part of the program. But the programmed path entails still very high debt well into the next decade, leaving Greece accident prone for an extended period. Should debt sustainability concerns prove to be weighing on investor sentiments even with the framework for debt relief now in place, European partners should consider providing relief that would entail a faster reduction in debt than currently programmed.

56. The authorities’ commitment to implement corrective actions and other program policies will be tested in the still difficult macroeconomic and political environment. The program remains subject to numerous risks, mainly from the worsening of the macro outlook combined with a further deterioration in banking sector assets (feeding back to the real economy), difficulties with the implementation of ambitious fiscal policy and administrative changes, and—above all—failure once again to ensure a reinvigoration of structural reforms in the face of strong resistance from vested interests. Absent a critical mass of structural reforms that would transform the investment climate, the growth outlook—and, therefore, crucially the assumptions regarding financing needs for the rest of the program period and the debt path—would not materialize. Externally, closing financing gaps and delivering on the commitment to reduce debt will be a test of European support.

57. On the basis of reforms undertaken in the context of this review, and the government’s policy commitments going forward, staff supports the completion of the fourth review. Staff supports the authorities’ request for waivers of applicability and modification of the end-September performance criterion on privatization receipts.

Box 1.Greece: Banking Sector Restructuring

The restructuring of the Greek banking sector is almost complete following the final recapitalization of four core banks, resolution of non-core banks, and sale of two bridge banks.

  • Three of the core banks—National Bank of Greece, Alpha Bank, and Piraeus Bank—were successful in raising more than 10 percent of their capital needs from the private sector and thus stayed under private sector management. Eurobank was fully recapitalized by the HFSF (table below).
Share in Ownership After Recapitalization, 2013(Percent of total share in equity)
Private sectorHFSF
Alpha16.383.7
Eurobank1.498.6
National Bank of Greece15.484.6
Piraeus21.778.3
Sources: Bank of Greece; HFSF; and IMF staff estimates.
Sources: Bank of Greece; HFSF; and IMF staff estimates.
  • From the non-core banks, ATE, T-Bank and FBB were resolved via Purchase and Assumption transactions; and Proton and TT-Hellenic Postbank were resolved into bridge banks, and subsequently sold to Eurobank. Attica Bank was the only non-core bank that avoided resolution by raising private sector capital. Probank is in its final stages of a capital-raising process.
  • Foreign-owned banks were acquired by domestic core banks Alpha (Emporiki) and Piraeus (Geniki, Millennium BCP and the Greek branches of Cypriot banks). In the context of their sale, they were recapitalized by their parents.
  • The post-recapitalization banking landscape is dominated by the four core banks with 96 percent share of total deposits.
The Status of Greek Banks, 2013(Millions of euros)
BanksStatusInjection by Official

Sector
Injection by the

Private Sector
Core banks
NBGRecapitalized.8,6771,079
EurobankRecapitalized.5,8390
AlphaRecapitalized.4,021550
Piraeus 1/Recapitalized.6,4151,444
Non-core banks 2/
ATEResolved. Purchase and assumption by Piraeus.8,0410
FBBResolved. Purchase and assumption by NBG.6190
T-Bank 3/Resolved. Purchase and assumption by Hellenic Postbank.6770
3 CooperativesResolved. and assumption by NBG.3200
Proton 3/Resolved. Purchase and assumption by Eurobank.2,0320
Hellenic PostbankResolved. and assumption by Eurobank.4,2330
AtticaRaised private sector capital.0199
GenikiPurchased by Piraeus.0290
Emporiki 4/Purchased by Alpha.03,000
Millennium BCPPurchased by Piraeus.0413
Sources: Bank of Greece; HFSF; and IMF staff estimates.

Injection by the official sector includes injection for Cypriot banks but excludes capital payment for ATE. This item is included in resolution costs. Injection by the private sector includes subscription by SocGen and BCP to share capital increase.

Resolutions include capital injections. Probank capitalization process ongoing.

Includes injection by HDIGF.

Includes 150 million subscription of Credit Agricole to an Alpha bond issuance.

Sources: Bank of Greece; HFSF; and IMF staff estimates.

Injection by the official sector includes injection for Cypriot banks but excludes capital payment for ATE. This item is included in resolution costs. Injection by the private sector includes subscription by SocGen and BCP to share capital increase.

Resolutions include capital injections. Probank capitalization process ongoing.

Includes injection by HDIGF.

Includes 150 million subscription of Credit Agricole to an Alpha bond issuance.

Greek Banking Sector Landscape Post-Restructuring(Percent)
BanksDeposit

Market Share
Four core banks
NBG25
Alpha22
Eurobank19
Piraeus30
Remaining non-core banks
Attica2
Probank2
Panellinia<1
Specialized credit insistutions (ABB and IBG)<1
Sources: Bank of Greece; and IMF staff estimates.
Sources: Bank of Greece; and IMF staff estimates.

Box 2.Health Spending Overruns

Greece has reduced health care expenditures significantly since 2010, to well below the average for EU countries, supported by the creation of a unified public health care fund in 2012. However, further reductions planned for 2013 have fallen short, requiring an interim claw-back mechanism followed by improvements in underlying systems and controls to stay within the health care budget. Going forward, there is limited scope for additional fiscal savings from public health spending.

Public health expenditure as a share of GDP has declined in recent years. It dropped from 7.1 percent of GDP in 2010 to 5.8 percent of GDP in 2012 and is projected to reach 5.3 percent of GDP in 2013—well below the 6.3 percent of GDP average for EU countries. The decline was mostly due to lower wages and spending on supplies in public hospitals, and lower reimbursement costs for pharmaceuticals by the public health care fund, EOPYY.

The creation of EOPYY in 2012 has supported rationalization of the public health system, but further efforts are needed. By consolidating 8 SSFs, EOPYY allows for a consistent and unified national health policy subject to central oversight. Moreover, EOPYY’s significant market power should facilitate delivery of high quality health care at reasonable cost. However, EOPYY continues to be hindered by unresolved financial relations with the old SSFs and weak budgeting and control practices.

EOPYY’s spending in 2013 through April was running well above budget, which would lead to an annual shortfall of 0.3 percent of GDP if not corrected. The overruns are largely explained by above-budget spending on diagnostics and private clinics that reflect: (i) an increase in the benefit package for some beneficiaries who received minimal benefits in the past; (ii) increased use of the benefits as individuals learn about their entitlements, (iii) greater use of the public health system as incomes are affected by the recession; and (iv) the failure of cost control measures (higher co-pays and lower prices for diagnostic services) due to a surge in volume (which suggests that providers may be waiving co-payments and billing higher volumes to compensate).

Underlying weaknesses in EOPYY have impaired its ability to contain these budget slippages:

  • Weak controls on billing. There is little effort to evaluate whether invoices are consistent, to identify abuse, or to evaluate the quality of care delivered.
  • Weak controls on budget implementation. SSFs still maintain powers over the health care budget for functions that should be controlled by EOPYY, such as paying wages and some medical benefits. This suggests that the integration of some funds is only in name, but not in practice.
  • Deficiencies in the budget process. Revenue estimates are imprecise, and expenditures under-budgeted.

Reform Plans

In the short run, the authorities will impose a claw-back mechanism to limit producer-induced demand and stay within 2013 budget allocations. A claw-back is equivalent to a budget constraint in which prices are determined after quantities are observed. However, the claw-back is a blunt tool and it could expose the government to litigation risks, and create adverse incentives (cherry-picking of patients, further incentives to cheat). Thus it should be only a stop-gap measure until more fundamental remedies can be put in place.

Durably containing EOPYY’s costs require strengthening its oversight capacity. This will be achieved by introducing better monitoring and enforcement mechanisms, including: (i) randomly monitoring providers to verify whether co-payments are waived; (ii) sharing data on providers’ reimbursement with the tax administration to verify that tax liabilities have increased in keeping with the spending increase (including collection of co-payments); (iii) establishing clearer reporting requirements for providers; and (iv) reducing EOPYY’s dependence on other funds.

Over the medium and long term there is little room to achieve further durable savings from the public health budget. Recent savings have been achieved through targeted reforms to reduce wasteful spending. Going forward, the already low budget envelope for health care implies that there is little room for further savings short of measures to ration non-essential services.

Box 3.Toward a New Property Tax in Greece

Greece is undertaking a major reform to replace two property taxes that expire after 2013 with a unified property tax. It will be a major challenge to implement the new tax and raise the targeted €2.7-2.9 billion in 2014.

Property taxes in Greece need to be unified. The currently existing real estate based wealth tax (FAP) and the property tax collected through the Public Power Corporation (PPC) expire at end-2013 and will be replaced with a single property tax. This is also an opportune moment to reduce the excessive tax on property transactions (as revenues from this tax are currently low due to the very low volume of transactions), which would remove a major distortion in the real estate market. The annual revenue that a new tax must secure amounts to €2.7 billion (€2.9 billion if the transaction tax is also reduced).

State Property Taxes in Greece
Current Taxes, 2013New Tax, 2014
TaxFAPPPCNew Property Tax
Tax baseObjective value of property rightArea, adjusted for zone price and ageArea, adjusted for zone price and age
Collection MethodTax declarationPPC billTax declaration
TaxpayerProperty owner(s)Property occupantProperty owner(s)
Tax subjectProperty rightPropertyProperty right (short run), property (long run)
Number of Taxpayers170,000 (FAP 2010) 560,000 (FAP 2011-13)5.6 millionAround 5.6 million
Collection Rate66.5 percent85 percent70 percent on average
Projected Revenue€0.8 billion€1.9 billion€2.7 billion, €2.9 billion if transaction tax is included
Sources: Ministry of Finance; and IMF staff estimates.
Sources: Ministry of Finance; and IMF staff estimates.

The agreed new property tax framework has the following features:

  • Similar assessment methodology to the PPC levy, utilizing the zone price of the property, size of the building, and an age coefficient. This methodology retains a relatively simple assessment structure which gives an element of continuity with the PPC levy.
  • An increase in the number of zone price bands from nine to 33 compared to the PPC tax to more accurately reflect the underlying ‘value’ of the property.
  • Progressivity due to higher tax rate per square meter in more expensive zones and residual regressivity of the tax will be addressed through relief targeted at those in economic hardship.
  • Expansion of the tax base to commercial, industrial, and agricultural properties that will share 25–30 percent of the tax burden.
Preliminary Assessment of the New Property Tax Framework, 2014
Assessed

(millions of euros)
Collected

(millions of euros)
Collection Rate

(percent)
Share

(percent)
Buildings (individuals)2,278.31,526.46753
Land (individuals)786.1526.76718
Commercial buildings (legal entities)272.9245.6908
Other commercial buildings (SMEs)505.6353.97012
Land (legal entities)81.273.1903
Industry, etc. (legal entities)68.561.7902
Land (non-urban)158.8113.8724
Total4,151.42,901.270100
Sources: Ministry of Finance; and IMF staff estimates.
Sources: Ministry of Finance; and IMF staff estimates.

Important limitations carried over from the FAP tax will remain, at least in the short run. Thus, the new tax should be seen as a transition step toward a modern, valuation based property tax regime in the next 2-3 years. Drawbacks include:

  • The tax is based on property right holdings of individuals, rather than properties (e.g., if two individuals jointly hold a property, each individual is assessed based on her ownership share).
  • Administering the tax relies upon self-assessment, given the lack of a property register.
  • The formula for assessing the tax base is imperfectly correlated with the property’s market value.
  • Property right holdings of individuals are clustered within the 3 lowest value bands, with 40 percent of revenue collected from them also concentrated in those bands

There is a risk of revenue shortfalls, especially at the outset. Achieving good compliance rates will be a major challenge, given that collection will be reliant on self-assessment, similar to the current FAP (and unlike the PPC tax that was sent to all household electricity consumers). It is thus difficult to forecast compliance and revenue with a high degree of confidence. Strengthening the collection process to reduce the risk of revenue underperformance will require significant effort and resources. For example, with 5.6 million taxpayers subject to the tax, an additional 300 staff of the revenue administration will have to be allocated to property tax collection to ensure a collection rate of 85 rather than 67 percent.

Implementing the new property tax by 2014 will be challenging. Preparations need to address remaining policy design issues, legal drafting, data cross-checks, computer system and work process design, and education and public information. The project management team will have to compete with other ongoing reforms for the allocation of adequate human resources. Moreover, this initiative will be underway at the same time that the revenue administration is undertaking a large number of other major reforms in the revenue administration to strengthen its autonomy and operational efficiency, roll out the new income tax regime, and implement the tax procedures code.

Box 4.Greece: Exceptional Access Criteria

The program continues to satisfy the substantive criteria for exceptional access but with little to no margin. This assessment assumes that euro area member states support Greece, including by providing additional official financing to fill future financing gaps and through further debt relief, if necessary.

  • Criterion 1. The member is experiencing or has the potential to experience exceptional balance of payments pressures on the current or capital account, resulting in a need for Fund financing that cannot be met within the normal limits. Balance of payments support beyond normal access limits continues to be required since external financing needs remain large and financial conditions remain adverse.
  • Criterion 2. A rigorous and systematic analysis indicates that there is a high probability that the member’s public debt is sustainable in the medium term. However, in instances where there are significant uncertainties that make it difficult to state categorically that there is a high probability that the debt is sustainable over this period, exceptional access would be justified if there is a high risk of international systemic spillover. In light of the commitments from euro area member states to provide additional debt relief as necessary, the baseline debt trajectory is sustainable in the medium-term but subject to significant risks. In the near term debt will remain very high, giving rise to uncertainties that make it difficult to categorically affirm that debt is sustainable with a high probability. However, the risk of international systemic spillovers in case of a permanent interruption of the program remains high and justifies exceptional access.
  • Criterion 3. The member has prospects for gaining or regaining access to private capital markets within the timeframe when Fund resources are outstanding. Prospects for market access exist conditional on successful program implementation and adequate official financing from Greece’s European partners. The staff expects the authorities to avoid large issuances, and to avail themselves of official financing that Euro area member states have committed to provide (so long as Greece adheres to program policies), on terms that would enable this financing to play an important catalytic role in securing market re-access. A gradual return to market access backstopped by official financing by Euro area member states will ensure Greece has financing on a scale and timing adequate to secure repayment of Fund resources.
  • Criterion 4. The policy program of the member provides reasonably strong prospect of success, including not only the member’s adjustment plans but also its institutional and political capacity to deliver that adjustment. Program implementation has been difficult given the social and political environment, but the authorities have demonstrated program ownership and policy resolve through the implementation of prior actions in key areas. Technical assistance from the EC and the IMF is supporting the authorities’ efforts. On this basis, staff assesses there is a reasonably strong prospect of success of the program.
Table 7.Greece: General Government Operations, 2010–17 1/
20102011201220132014201520162017
Proj.
(Billions of euros)
Revenue90.288.485.578.880.280.683.887.9
Indirect taxes27.326.624.323.323.724.325.426.6
Direct taxes17.518.019.117.019.119.019.520.4
Social contributions29.827.426.524.624.224.726.327.6
Other current revenue4.95.74.74.43.93.74.34.5
Sales6.15.65.85.05.14.95.15.3
Capital revenue4.65.04.94.54.34.13.23.4
Primary expenditure101.193.387.979.077.478.378.982.7
Social benefits47.547.544.439.038.939.940.142.1
Subsidies0.11.01.00.90.91.01.01.1
Other current expenditure3.42.62.32.11.91.91.92.0
Compensation of employees27.825.924.221.521.321.120.921.9
Intermediate consumption13.49.89.58.98.18.18.28.6
Investment8.96.76.66.56.36.56.87.1
Unidentified measures (cumulative)0.00.00.00.1−0.13.44.14.3
Primary balance−10.9−4.9−2.50.02.85.79.09.4
Interest13.215.09.77.58.79.710.410.7
Overall balance−24.1−20.0−12.2−7.5−6.0−4.0−1.4−1.3
Gross debt (Maastricht)329.5355.2303.9322.5320.1319.7318.0313.1
(Percent of GDP)
Total primary revenue40.642.444.142.943.642.442.042.0
Indirect taxes12.312.812.612.712.912.812.712.7
Direct taxes7.98.69.99.310.410.09.89.8
Social contributions13.413.213.713.413.213.013.213.2
Other current revenue2.22.72.42.42.12.02.12.1
Sales2.72.73.02.72.72.62.62.6
Capital revenue2.12.42.52.52.32.21.61.6
Total primary expenditure45.544.845.443.042.141.239.539.6
Social benefits21.422.822.921.321.221.020.120.1
Subsidies0.10.50.50.50.50.50.50.5
Other current expenditure1.51.21.21.11.01.01.01.0
Compensation of employees12.512.412.511.711.611.110.510.5
Intermediate consumption6.04.74.94.94.44.24.14.1
Investment4.03.23.43.53.43.43.43.4
Unidentified measures (cumulative)0.00.00.00.1−0.11.82.02.0
Primary balance−4.9−2.4−1.30.01.53.04.54.5
Interest5.97.25.04.14.75.15.25.1
Overall balance−10.8−9.6−6.3−4.1−3.2−2.1−0.7−0.6
Gross debt (Maastricht)148.3170.3156.9175.7174.0168.1159.4149.7
Nominal GDP (billions of euros)222.2208.5193.7183.5184.0190.2199.5209.1
Sources: Ministry of Finance; and IMF staff projections.

Calculations based on program definitions as outlined in the TMU.

Sources: Ministry of Finance; and IMF staff projections.

Calculations based on program definitions as outlined in the TMU.

Table 8.Greece: General Government Statement of Operations (GFSM 2001, flows), 2010–16(Millions of euros)
2010201120122013201420152016
Revenue90,23288,38385,45880,27279,64680,58383,742
Taxes45,10944,91743,64441,90742,03742,54044,133
Social contributions29,76427,43526,50824,72325,02825,32526,543
Grants and other revenue15,35916,03115,30613,64312,58112,71813,066
Expenditure114,289108,34697,65587,95485,63787,89388,958
Expense114,472111,332100,264
Compensation of employees27,77325,85224,21521,33320,66320,36420,125
Use of goods and services13,4299,7899,4568,1137,1277,2137,385
Consumption of fixed capital5,3865,7826,263
Interest13,19315,0169,7237,5338,7119,65610,378
Subsidies129982977561366569570
Social benefits47,47647,45044,38338,48237,87738,78139,639
Grants and other expense7,0866,4615,2473,4262,3531,8701,863
Net acquisition of nonfinancial assets−183−2,986−2,609
Gross capital formation 1/5,2032,7963,6548,5068,5409,4408,998
(-) Consumption of fixed capital5,3865,7826,263
Unidentified Measures (Cumulative)149383,3573,807
Gross operating balance 2/−18,854−17,167−8,5439722,5865,4877,588
Net operating balance 3/−24,240−22,949−14,806
Net lending (+)/borrowing (-) 4/−24,057−19,963−12,197−7,533−5,954−3,953−1,409
Primary Net lending (+)/borrowing (-)−10,864−4,947−2,47402,7585,7028,969
Net acquisition of financial assets4,79835652,061
Monetary gold and SDRs000
Currency and deposits5,097−2,0124,979
Debt securities0−4813,535
Loans144832−4,995
Equity and investment fund shares38065238,036
Insurance, pensions, and standardized guarantee schemes411
Financial derivatives and employee stock options000
Other accounts receivable−827931505
Net incurrence of liabilities28,69520,05764,525
SDRs000
Currency and deposits−503−184−46
Debt securities−311−2,981−44,744
Loans30,21626,907107,811
Equity and investment fund shares000
Insurance, pensions, and standardized guarantee schemes000
Financial derivatives and employee stock options951166−1,499
Other accounts payable−1,658−3,8513,003
Sources: IMF, Government Finance Statistics; and IMF staff projections.

Acquisition less disposals of nonfinancial assets.

Revenue minus expense (excluding consumption of fixed capital).

Revenue minus expense (including consumption of fixed capital).

Revenue minus expenditure.

Sources: IMF, Government Finance Statistics; and IMF staff projections.

Acquisition less disposals of nonfinancial assets.

Revenue minus expense (excluding consumption of fixed capital).

Revenue minus expense (including consumption of fixed capital).

Revenue minus expenditure.

Annex I. Debt Sustainability Analysis

1. This appendix provides an update on staff’s assessment of the sustainability of Greece’s public and external debt. In view of the unchanged macroeconomic framework, public debt dynamics are similar to the path under the Third Review. Results continue to suggest that the current program can place Greece’s debt on a sustainable trajectory but that significant risks remain, particularly due to the significant and sustained primary adjustment required of Greece.

A. Key Inputs for the DSA

2. The macro, policy, and financing framework underlying the DSA is broadly unchanged:

  • Output. Staff continues to project further contraction in the economy before a mild recovery begins in 2014. Liquidity conditions and confidence have improved but the underlying balance sheet correction continues to weigh on demand.
  • Fiscal adjustment. The program remains based on 1.5 percent of GDP in headline primary adjustment per year culminating in a surplus of 4.5 percent of GDP in 2016. The DSA assumes Greece can maintain a primary surplus of 4 percent in the long run. Though some European countries (Belgium and Ireland) have sustained high primary surpluses in the past, this assumption is ambitious.
  • Privatization proceeds. The DSA continues to assume that the authorities can generate about €22 billion from assets sales through 2020, down from the €45 billion assumed at the start of the EFF. Privatization proceeds are assumed to be back loaded compared to the third review, on the basis of the recent delays, although market value of some of the assets increased with the rebound in stock prices.
  • Financing. The financing relief measures committed by the Eurogroup in December have broadly taken hold: the interest margin on GLF loans was cut from 100 bps to 50 bps, the administrative fee on EFSF loans was eliminated, the interest on EFSF loans has been deferred, and income on SMP profits is expected to be transferred in July. However, the Eurogroup agreed to provide further financing of almost €4 billion through 2014 and €5.6 billion through 2016.
  • Other. The DSA has unchanged assumptions regarding key issues of liquidity management in Greece. As agreed with the euro area member states, Greece has reduced outstanding T-bills to €15 billion and will maintain that stock over the program period rather than a more aggressive drawdown as originally envisioned. Meanwhile, the program continues to assume financing provided will be adequate to reduce arrears in net terms by €8 billion by end-2013 while maintaining adequate deposit buffers.

B. Public Sector DSA

3. Baseline projections include contingent relief measures to bring the debt to 124 percent of GDP in 2020 (Table AI.1). Owing to small changes in the phasing of disbursements, debt now peaks in 2013 at around 176 percent of GDP before starting a sustained decline in 2015. In December 2012, euro area member states committed to provide further relief to Greece—once it reaches an annual primary surplus––to ensure that debt in 2020 is 124 percent of GDP in 2020 and substantially below 110 percent of GDP in 2022. The first commitment is modeled in the DSA: debt is slated for a reduction to 124 percent in 2020, after additional contingent relief measures of about 4 percent of GDP to be determined in 2014–15. Debt is expected to fall further to around 114 percent of GDP in 2022 (before measures to reduce debt to substantially below 110 percent of GDP in 2022 as conditionally committed by Greece’s European partners).

Table AI.1.Greece: Public Sector Debt Sustainability Framework, 2008–30(Percent of GDP, unless otherwise indicated)
ActualProjectionsDebt-stabilizing

primary

balance
2008200920102011201220132014201520162020202120222023202420252030
Baseline: public sector debt 1/112.9129.7148.3170.3156.9175.7174.0168.1159.4124.0118.2113.6109.4105.7102.386.51.1
Of which: foreign-currency denominated0.00.00.00.00.00.00.00.00.00.00.00.00.00.00.00.0
Change in public sector debt5.716.818.622.0−13.518.9−1.7−5.9−8.7−8.0−5.8−4.7−4.2−3.7−3.3−3.0
Identified debt-creating flows (4+7+12)5.516.516.620.165.318.6−1.5−7.6−8.0−8.2−6.9−4.8−4.8−3.9−3.6−2.9
Primary deficit4.810.54.92.41.30.0−1.5−3.0−4.5−4.2−4.0−4.0−4.0−4.0−4.0−4.0
Revenue and grants40.738.340.642.444.142.943.642.442.042.042.042.042.042.042.042.0
Primary (noninterest) expenditure45.548.845.544.845.442.942.139.437.537.838.038.038.038.038.038.0
Automatic debt dynamics 2/0.56.211.216.918.012.94.3−0.6−2.6−1.1−0.5−0.3−0.3−0.10.10.9
Contribution from interest rate/growth differential 3/0.56.211.216.918.012.94.3−0.6−2.6−1.1−0.5−0.3−0.3−0.10.10.9
Of which contribution from real interest rate0.32.64.55.76.35.95.44.33.42.21.91.81.81.92.02.4
Of which contribution from real GDP growth0.23.66.711.211.76.9−1.1−5.0−6.0−3.3−2.4−2.2−2.1−2.0−1.9−1.6
Contribution from exchange rate depreciation 4/0.00.00.00.00.0
Other identified debt-creating flows0.2−0.10.60.846.05.8−4.3−4.0−0.9−2.9−2.4−0.5−0.50.20.30.2
Privatization receipts (negative)0.00.00.0−0.5−0.1−0.9−1.9−1.1−1.1−1.5−1.3−0.4−0.40.00.00.0
Recognition of implicit or contingent liabilities0.2−0.10.61.37.12.7−2.5−3.00.2−1.3−1.1−0.1−0.10.20.30.2
Other (Includes bank recap, PSI sweetener)0.00.00.00.039.03.90.00.00.00.00.00.00.00.00.00.0
Residual, including debt relief (2-3) 5/0.10.32.01.9−78.70.2−0.21.7−0.70.31.10.20.60.20.3−0.1
Public sector debt-to-revenue ratio277.6338.2365.2401.9355.6409.2399.2396.6379.6295.1281.4270.3260.3251.5243.6205.9
Gross financing need 6/9.915.619.627.518.921.125.118.611.68.77.36.48.38.67.69.2
Billions of U.S. dollars34.150.257.979.747.151.460.846.330.226.823.221.128.530.828.241.4
Key macroeconomic and fiscal assumptions underlying baseline
Real GDP growth (percent)−0.2−3.1−4.9−7.1−6.4−4.20.62.93.72.62.01.91.91.91.91.8
Average nominal interest rate on public debt (percent) 7/5.04.54.44.62.72.52.73.03.23.53.63.63.73.94.14.8
Average real interest rate (nominal rate minus change in GDP deflator, percent)0.32.23.33.53.53.63.12.62.21.81.61.61.71.92.12.8
Inflation rate (GDP deflator, percent)4.72.31.11.0−0.7−1.1−0.40.41.11.71.92.02.02.02.02.0
Growth of real primary spending (deflated by GDP deflator, percent)6.33.9−11.3−8.6−5.1−9.4−1.4−3.7−1.22.62.71.91.91.91.91.8

General government gross debt. Only intra-government holdings are netted out.

Derived as [(r - p(1+g) - g + ae(1+r)]/(1+g+p+gp)) times previous period debt ratio, with r = interest rate; p = growth rate of GDP deflator; g = real GDP growth rate; a = share of foreign-currency denominated debt; and e = exchange rate depreciation (measured by increase in local currency value of U.S. dollar).

The real interest rate contribution is derived from the denominator in footnote 2/ as r -π (1+g) and the real growth contribution as -g.

The exchange rate contribution is derived from the numerator in footnote 2/ as ae(1+r).

For projections, this line includes exchange rate changes.

Defined as public sector deficit, plus amortization of medium and long-term public sector debt, plus short-term debt at end of previous period.

Derived as nominal interest expenditure divided by previous period debt stock.

General government gross debt. Only intra-government holdings are netted out.

Derived as [(r - p(1+g) - g + ae(1+r)]/(1+g+p+gp)) times previous period debt ratio, with r = interest rate; p = growth rate of GDP deflator; g = real GDP growth rate; a = share of foreign-currency denominated debt; and e = exchange rate depreciation (measured by increase in local currency value of U.S. dollar).

The real interest rate contribution is derived from the denominator in footnote 2/ as r -π (1+g) and the real growth contribution as -g.

The exchange rate contribution is derived from the numerator in footnote 2/ as ae(1+r).

For projections, this line includes exchange rate changes.

Defined as public sector deficit, plus amortization of medium and long-term public sector debt, plus short-term debt at end of previous period.

Derived as nominal interest expenditure divided by previous period debt stock.

4. Stress tests suggest the baseline debt path is particularly vulnerable to growth and primary surplus shocks while being resilient to lower privatization or interest rate shocks. This reflects the already low privatization assumptions and largely official sector debt.

  • If the primary surplus stays at the 2013 target level of 0, debt to GDP will reach 148 percent of GDP in 2020 and will be rising over the medium term.
  • If nominal growth averages 1 percent lower than the 4 percent baseline projection, debt will be 134 percent in 2020 with an only modest declining path thereafter.
  • If privatization receipts are half of the €22 billion expected, debt in 2020 would be only 4ppts higher than the baseline while maintaining a strong downward trajectory.
  • If EFSF interest rates are 1 ppt higher, debt would again be only 4 percentage points higher than the baseline. Shocks to market rates only affect debt slowly after 2020.

Figure AI.1.Greece: Public Debt Sustainability: Bound Tests, 2008–18 1/2/

(Public debt in percent of GDP)

Sources: IMF staff estimates.

1/ Shaded areas represent actual data. Individual shocks are permanent one-half standard deviation shocks. Figures in the boxes represent average projections for the respective variables in the baseline and scenario being presented. Ten-year historical average for the variable is also shown.

2/ For historical scenarios, the historical averages are calculated over the ten-year period, and the information is used to project debt dynamics five years ahead.

3/ Permanent 1/4 standard deviation shocks applied to real interest rate, growth rate, and primary balance.

4/ 10 percent of GDP shock to contingent liabilities occur in 2014.

C. External Sector DSA

5. External debt is expected to decline gradually. Gross debt, currently at 233 percent of GDP, would peak at around 240 percent of GDP in 2013 and then decline to about 145 percent in 2020. Net debt would fall from about 130 percent of GDP in 2012 to around 75 percent in 2020. Several factors lie behind the projected improvement in external debt. Most importantly, the current account is projected to improve as competitiveness is restored and Greece continues to rely on official loans at relatively low interest rates. The agreed reduction in the GLF interest rate and EFSF fees, and the return of SMP profits will also contribute to the sharp improvement in the current account. FDI inflows related to privatization also remain an important non-debt-creating source of financing.

6. Macroeconomic shocks and policy slippages could result in adverse dynamics.

  • Larger current account deficits. Slow competitiveness improvements resulting from delayed structural reforms or a terms-of-trade shock could affect exports negatively and worsen the baseline current account projections by around 1.5 percent of GDP. The debt ratio would remain on a downward path, but would be 11 percentage points higher than in the baseline by 2020.
  • Deflation shock. Larger-than-projected decreases in domestic prices would adversely affect external debt dynamic by reducing export receipts (assuming no volume increase) and the GDP deflator. For example, an additional 1 percent deflation over the medium term would result in a 2020 debt ratio that is 14 percentage points above the baseline.
  • Slippages in privatization. Privatization delays that result in only about half of the projected privatization proceeds over the projections period would affect external debt dynamics by reducing non-debt-creating flows. The impact on the debt path would be modest since baseline privatization related inflows are small relative to the overall financial account balance. The debt ratio in 2020 would be around 4 percentage points higher than in the baseline.

7. Debt dynamics would be significantly worse under a combined shock involving lagged program implementation, weak competitiveness, and higher deflation. The shocks above would likely be individually manageable, but would have a more substantial impact in an adverse scenario where they occur simultaneously. The net debt ratio would reach about 105 percent of GDP in 2020, 30 percent of GDP higher than in the baseline.

Table AI.2.Greece: External Debt Sustainability Framework, 2007–21(Percent of GDP, unless otherwise indicated)
ActualProjectionsDebt-stabilizing non-interest current account 7/
200720082009201020112012201320142015201620172018201920202021
Baseline: external debt70.576.890.5134.4148.3130.6135.1131.5124.1115.0105.495.385.676.469.1−5.1
Change in external debt6.76.413.743.913.9−17.74.4−3.6−7.4−9.1−9.6−10.1−9.7−9.3−7.2
Identified external debt-creating flows (4+8+9)6.1−1.99.212.616.712.25.2−3.9−8.0−9.8−9.8−8.5−8.4−8.2−7.4
Current account deficit, excluding interest payments9.89.16.04.93.7−0.6−3.8−4.8−5.5−5.7−6.2−6.5−6.6−6.5−6.1
Deficit in balance of goods and services11.211.57.86.86.02.50.1−1.5−2.5−3.0−3.6−4.2−4.6−4.9−4.8
Exports21.923.118.320.523.425.427.428.328.728.628.728.928.929.028.8
Imports33.134.626.227.329.527.927.526.826.225.625.124.724.424.124.0
Net non-debt creating capital inflows (negative)−2.4−0.30.01.40.3−1.1−0.9−1.7−1.3−1.5−1.6−1.9−2.1−2.2−2.3
Automatic debt dynamics 1/−1.3−10.73.26.312.713.99.92.6−1.2−2.5−2.00.00.30.61.0
Contribution from nominal interest rate2.62.52.52.63.92.62.62.93.13.23.33.23.02.72.4
Contribution from real GDP growth−1.8−10.02.44.710.210.25.8−0.9−3.7−4.4−3.8−3.3−2.8−2.2−1.5
Contribution from price and exchange rate changes 2/−2.0−3.2−1.7−1.0−1.41.11.50.5−0.6−1.3−1.5−1.5−1.6−1.5−1.4
Residual, incl. change in gross foreign assets (2-3) 3/0.68.24.531.2−2.8−29.9−0.70.30.60.70.2−1.6−1.3−1.10.2
External debt-to-exports ratio (in percent)321.8332.6494.5655.3633.2515.2492.5464.5432.3401.8367.1330.3296.3263.5239.9
Gross external financing need (billions of euros) 4/93.3122.9194.4216.2239.0205.6179.1141.0123.999.784.474.566.956.942.2
Percent of GDP41.952.784.197.3114.6106.197.676.765.250.040.334.029.223.716.9
Scenario with key variables at their historical averages 5/130.9130.8131.0131.1130.9130.5130.4130.3131.0−6.7
Key macroeconomic assumptions underlying baseline
Real GDP growth (percent)3.017.5−3.1−4.9−7.1−6.4−4.20.62.93.73.53.33.02.62.0
GDP deflator (change in percent)3.34.72.31.11.0−0.8−1.1−0.40.41.11.31.41.71.71.9
Nominal external interest rate (percent) 6/4.34.43.32.82.71.61.92.22.42.73.03.23.33.33.3
Growth of exports (euro terms, percent)9.610.4−21.57.77.20.62.43.54.84.55.25.35.04.73.4
Growth of imports (euro terms, percent)14.39.6−25.20.31.4−12.1−6.6−2.11.02.42.82.93.43.33.7
Current account balance−14.6−14.9−11.2−10.1−9.9−3.4−0.8−0.30.10.20.60.91.31.61.5
Net non-debt creating capital inflows2.40.30.0−1.4−0.31.10.91.71.31.51.61.92.12.22.3

Derived as [r - g - r(1+g) + ea(1+r)]/(1+g+r+gr) times previous period debt stock, with r = nominal effective interest rate on external debt; r = change in domestic GDP deflator in euro terms, g=real GDP growth, e = nominal appreciation (increase in dollar value of domestic currency), and a = share of domestic-currency denominated debt in total external debt.

The contribution from price and exchange rate changes is defined as [-r(1+g) + ea(1+r)]/(1+g+r+gr) times previous period debt stock. r increases with an appreciating domestic currency (e > 0) and rising inflation (based on GDP deflator).

For projection, line includes the impact of price and exchange rate changes.

Defined as current account deficit, plus amortization on medium- and long-term debt, plus short-term debt at end of previous period.

The key variables include real GDP growth; nominal interest rate; dollar deflator growth; and both non-interest current account and non-debt inflows in percent of GDP.

The external DSA is based on net external debt while the interest rates in the public sector DSA are based on gross debt. Nevertheless, average interest rates generally follow a rising trend, and are more closely correlated at the end of the projection period, as more new debt is contracted at higher interest rates.

Long-run, constant balance that stabilizes the debt ratio assuming that key variables (real GDP growth, nominal interest rate, dollar deflator growth, and non-debt inflows in percent of GDP) remain at their levels of the last projection year.

Derived as [r - g - r(1+g) + ea(1+r)]/(1+g+r+gr) times previous period debt stock, with r = nominal effective interest rate on external debt; r = change in domestic GDP deflator in euro terms, g=real GDP growth, e = nominal appreciation (increase in dollar value of domestic currency), and a = share of domestic-currency denominated debt in total external debt.

The contribution from price and exchange rate changes is defined as [-r(1+g) + ea(1+r)]/(1+g+r+gr) times previous period debt stock. r increases with an appreciating domestic currency (e > 0) and rising inflation (based on GDP deflator).

For projection, line includes the impact of price and exchange rate changes.

Defined as current account deficit, plus amortization on medium- and long-term debt, plus short-term debt at end of previous period.

The key variables include real GDP growth; nominal interest rate; dollar deflator growth; and both non-interest current account and non-debt inflows in percent of GDP.

The external DSA is based on net external debt while the interest rates in the public sector DSA are based on gross debt. Nevertheless, average interest rates generally follow a rising trend, and are more closely correlated at the end of the projection period, as more new debt is contracted at higher interest rates.

Long-run, constant balance that stabilizes the debt ratio assuming that key variables (real GDP growth, nominal interest rate, dollar deflator growth, and non-debt inflows in percent of GDP) remain at their levels of the last projection year.

Figure AI.2.Greece: External Debt Sustainability: Bound Tests, 2007–21 1/

(Net external debt in percent of GDP)

Sources: Greek authorites; and IMF staff estimates.

1/ Shaded areas represent actual/preliminary data. Figures in the boxes represent average projections for the respective variables in the baseline and scenario being presented. Ten-year (pre-crisis) historical average for the variable is also shown.

2/ Current account balance lower by 1.5 percent of GDP due to delayed program implementation and terms-of-trade shock.

3/ Impact of1pp negaitve shock to inflation rate (GDP and exports deflators). To be conservative, assumes no quantity effect.

4/ Decline in FDI due to reduced privatization receipts.

Annex II. Fund Relations

(As of June 30, 2013)

Membership Status: Joined December 27, 1945. It has accepted the obligations of Article VIII, Sections 2, 3, and 4.

Exchange Rate Arrangements: Greece’s currency is the euro, which floats freely and independently against other currencies. It maintains an exchange system free of restrictions apart from those resulting from European Council regulations, which were last notified to the Fund in accordance with Decision 144.

General Resources Account:

SDR MillionPercent Quota
Quota1,101.80100.000.
Fund holdings of currency24,106.922,187.96
Reserve position in Fund240.8221.86

SDR Department:

SDR MillionPercent Allocation
Net cumulative allocation782.36100.00
Holdings553.5270.75

Outstanding Purchases and Loans:

SDR MillionPercent Quota
Stand–by Arrangements17,541.801,592.10
Extended Arrangements5,704.10517.71

Latest Financial Arrangements:

TypeDate of

Arrangement
Expiration

Date
Amount Approved

(SDR Million)
Amount Drawn

(SDR Million)
EFFMar 15, 2012Mar 14, 201623,785.305,704.10
Stand-ByMay 09, 2010Mar 14, 201226,432.9017,541.80

Projected Payments to Fund (SDR million; based on existing use of resources and present holdings of SDRs):

Forthcoming
20132014201520162017
Principal1,471.816,277.797,299.092,609.70591.93
Charges/Interest410.95721.80426.91192.05123.59
Total1,882.766,999.597,726.002,801.75715.53

Implementation of HIPC Initiative: Not Applicable

Safeguards Assessment: An update safeguards assessment of the Bank of Greece (BoG) has been conducted in connection with the current Extended Fund Facility, and was finalized in August 2012. The update assessment found that BoG has strengthened its safeguards framework since the 2010 assessment. Financial reporting and external audit practices adhere to international standards and recent amendments to the BoG’s Statute are expected to enhance governance and the central bank’s autonomy from private shareholders. Emergency lending operations are subject to established legal and control frameworks, but the assessment recommends a compliance review by the BoG’s internal audit department.

Last Article IV mission: Discussions for the 2013 Article IV Consultation were held during April 8–15, 2013. The Staff Report (Country Report No. 13/154) was considered by the Executive Board on May 31, 2013. The report is available at http://www.imf.org/external/pubs/cat/longres.aspx?sk=40637.0. Article IV Consultations with Greece are currently held on a 24–month consultation cycle.

Technical Assistance:
DepartmentPurposeDate
MCMBanking SupervisionMarch 2010
FADPublic Financial Management (PFM): Initial Analysis and Priority ReformsApril 2010
FADRevenue Administration: Initial Analysis and Reform PrioritiesApril 2010
STAData Quality and Misreporting (K-1 Report)April 2010
FADGeneral Tax PolicyMay 2010
MCM/FAD/LEGFinancial InstrumentsMay 2010
FADExpenditure PolicyJune 2010
FADPFM: -up on Priority ReformsJune 2010
LEGImplementation of Financial Sector Components of the SBA ProgramJune 2010
MCMImplementation of Financial Sector Components of the SBA ProgramJune 2010
FADTax Administration: Design of the Anti-Evasion PlanJuly 2010
MCMImplementation of Financial Sector Components of the SBA ProgramSeptember 2010
FADTax Administration: Implementation of the Anti-Evasion PlanSeptember 2010
FADPFM: Implementation Status of Priority ReformsSeptember 2010
STAMonitoring of Fiscal Data for the ProgramSeptember 2010
FADTax Administration: Anti-Evasion and Structural ReformsOctober 2010
FADHealth System Analysis and ProposalsOctober 2010
STAGovernment Finance StatisticsDecember 2010
FADTax Administration: Anti-Evasion and Structural ReformsFebruary 2011
FADRole of Accounting OfficersFebruary 2011
STA/FADGovernment Finance Statistics/Fiscal ReportingMarch 2011
FADTax Administration: Strategic PlanningMarch 2011
FADPFM: Follow-up on Implementation of Priority ReformsApril 2011
FAD/LEGTax Administration: Anti-Evasion and Structural ReformsApril 2011
LEGLegal Framework for PrivatizationApril 2011
MCM/LEGReview of the Legal and Operational Framework for Bank ResolutionJune 2011
FADTax Administration: Strategic Planning and Taxpayer AuditJune 2011
FADTax Administration: Tax Collection and Tax Administration ReformJuly 2011
LEGAnti-Money Laundering (AML) and Anti-Tax Evasion: Strengthening the BoG’s Supervisory ProcessSeptember 2011
LEGAML and Anti-Tax Evasion: Review of Cross-Border Financial FlowsSeptember 2011
FADSafeguarding Revenue and Encouraging GrowthSeptember 2011
FADModernizing the General Accounting officeSeptember 2011
FADPreparing the 2012 BudgetsSeptember 2011
STAFiscal ReportingDecember 2011
FADExpenditure Policy: OECD Review of Social ProgramsJanuary 2012
FADTax AdministrationJanuary 2012
LEGReform of Central Bank Governance for Banking Supervision and ResolutionJanuary 2012
LEGAML and Anti-Tax Evasion: Strengthening the BoG’s Supervisory ProcessJanuary 2012
FADPFM: Accounting Officers and 2013 Budget PreparationFebruary 2012
FADTax Administration: Collection and Analyzing Taxpayer Compliance DataFebruary 2012
MCMStrengthening Governance Arrangements for Financial Sector AgenciesFebruary 2012
STAFiscal ReportingFebruary 2012
FADExpenditure Policy: Spending Review MissionMarch 2012
FADTax Administration: Follow-upMarch 2012
FADRevenue Administration: Social Contribution ComplianceMarch 2012
LEGAML and Anti-Tax Evasion: Strengthening the BoG’s Supervisory ProcessApril 2012
MCMBank ResolutionApril 2012
STAFiscal ReportingApril 2012
STAFiscal ReportingJune 2012
FADPFM: Discussions on PFM TA with the new Government of GreeceJuly 2012
FADTax AdministrationJuly 2012
FADRevenue Administration: Social Contribution ComplianceJuly 2012
FAD/LEGTax Policy: Technical Consultations on Tax Policy ReformsSeptember 2012
FADRevenue Administration: Social Contribution ComplianceSeptember 2012
FADTax Administration: IT Audit TechniquesSeptember 2012
FADTax Administration: Tax Audit Case SelectionSeptember 2012
LEGAML and Anti-Tax Evasion: Strengthening the BoG’s Supervisory ProcessSeptember 2012
FADPFM: Reform Implementation ReviewOctober 2012
FADTax Administration: Follow-upOctober 2012
FAD/LEGTax Policy: Technical Consultations on Tax Policy ReformsOctober 2012
FADTax Administration: Organizational ReformOctober 2012
FADTax Administration: IT Audit TechniquesOctober 2012
FADTax Administration: Organizational ReformNovember 2012
LEGAML and Anti-Tax Evasion: Strengthening the BoG’s Supervisory ProcessNovember 2012
FADPFM: Enterprise Resource Planning (ERP) IT Project and General Directorate of Financial ServicesDecember 2012
FADRevenue Administration: Social Contribution ComplianceJanuary 2013
FAD/LEGTax Policy: Follow-upJanuary 2013
FADTax Administration: Follow-upJanuary 2013
STAFiscal ReportingJanuary 2013
FADPFM: ERP IT Project, General Directorate of Financial Services and Commitment SystemFebruary 2013
FAD/LEGTax Policy: Drafting Income Tax CodeFebruary 2013
LEGJudicial ReformFebruary 2013
FADTax Administration: Organizational ReformMarch 2013
LEGAML and Anti-Tax Evasion: Strengthening the BoG’s Supervisory ProcessMarch 2013
STAFiscal ReportingMarch 2013
FADTax Administration: Follow-upApril 2013
FAD/LEGTax Policy: Drafting Tax Procedure CodeApril 2013
STA/FADExpenditure Policy: Strengthening the Social Budget ReportApril 2013
STAFiscal ReportingApril 2013
FADRevenue Administration: Social Contribution ComplianceMay 2013
FADPFM: Payment ProcessesMay 2013
LEGJudicial ReformMay 2013
FADPFM: Arrears and Commitment RegistersJune 2013
FADTax Policy: Property Tax ReformJune 2013
FAD/LEGTax Policy: Drafting Income Tax CodeJune 2013
FADTax Administration: Follow-upJuly 2013
FADTax Policy: Property Tax ReformJuly 2013
LEGAML and Anti-Tax Evasion: Strengthening the BoG’s Supervisory ProcessJuly 2013
LEGTax Policy: Drafting Tax Procedure CodeJuly 2013

Resident Representatives: Mr. Bob Traa (Senior Resident Representative) and Ms. Stephanie Eble (Deputy Resident Representative) assumed their positions in October 2010.

Appendix I. Letter of Intent

Athens, July 17, 2013

Ms. Christine Lagarde:

Managing Director

International Monetary Fund

Washington DC

Dear Ms. Lagarde:

In the attached update to the Memoranda of Economic and Financial Policies (MEFP) from March 9 and December 21, 2012, and May 20, 2013, we describe progress and policy steps towards meeting the objectives of the economic program of the Greek government, which is being supported by an arrangement under the Extended Fund facility (EFF).

Progress under the program and early signs that the recession has bottomed out, have contributed to a significant improvement in confidence and liquidity. Fiscal consolidation continues, bond yields have declined sharply since the 2012 peak, deposits have increased, economic sentiment is improving, and several Greek companies have recently accessed markets. The external position has improved, supported by steady competitiveness gains, and the pace of job losses is now slowing. We are optimistic that the economy will return to growth next year, although significant downside risks remain.

While full data to assess performance against our end-June 2013 quantitative performance criteria are not yet available, we expect to have met all targets. However, the indicative targets on privatization receipts, transfers to the mobility scheme, and domestic arrears (despite progress) were missed (Table 1). Some structural benchmarks relevant for this program review were also missed (Table 2).

Against this setting, we are taking corrective steps and are adopting key reforms, including as prior actions for this review (Table 3). We also remain committed to a steadfast implementation of the ambitious reform agenda that lies ahead.

  • Restoring fiscal sustainability. As prior actions for this review, we are taking policy steps to ensure that the fiscal targets for 2013–14 will be met, bring down the debt in the Renewable Energy Account, reform the income tax code and the tax procedure code to support our fiscal program, bring the public administration reforms back on track, and advance the privatization program.
  • Strengthening fiscal institutions. As prior actions, we are adopting legislation to allow the transfer of functions and staff to the revenue administration to strengthen its autonomy and improve operations, and to limit the deferral of payments arising from audit assessments only through the basic and fresh start schemes to improve collection efficiency. We are also implementing reforms that will strengthen expenditure control to help prevent accumulation of new arrears, and will mitigate long delays in payment processes to speed up clearance of existing arrears.
  • Safeguarding financial stability. As prior actions, we are completing a comprehensive banking sector strategy centered around the core four pillar banks, and are completing the disposal of the two bridge banks under HFSF control consistent with the above strategy. The recapitalization of our core banks is now complete, with three of these banks attracting sufficient private capital to allow them to remain under private management control. For the remaining core bank that was fully recapitalized by HFSF, we are committed to place by March 2014 a substantial equity stake with a private strategic international investor.
  • Accelerating growth-enhancing reforms. Our structural reform agenda focuses on strengthening the investment climate and domestic competition, reducing administrative burdens, and improving the functioning of our labor market. To that end, efforts continue to open up restricted professions, remove excessive regulations in the labor market, streamline export procedures, improve the functioning of our judicial system, and advance the privatization program.
  • Facilitating employment creation and protecting vulnerable groups. We are introducing employment programs targeted at unemployed youths, and are strengthening social protection to cushion vulnerable groups from the crisis impact, including by leveraging EU structural funds.

The program is fully financed through the next twelve months. Firm commitments are also in place thereafter from euro area members to provide adequate support during the program period and beyond, provided that we fully comply with the requirements and objectives of the program. In this regard, we also remain on track to receive the first phase of conditional debt relief from our European partners, as described in the Eurogroup statements on November 27 and December 13, 2012.

On this basis, we request completion of the fourth review under the EFF arrangement, and the next purchase in the amount of SDR 1.5068 billion. We have revised the targets for mandatory exits and entrants in the mobility scheme to gradually catch up with our original program targets, established a floor for employees in the mobility scheme that will exit, and revised the targets for privatization receipts in 2013 as some sales have slipped into 2014 and request on this basis a revision to the end-September 2013 performance criterion on the floor of privatization receipts (Table 1). We have introduced new structural benchmarks, on adoption in September of a new property tax, on issuance in October of secondary legislation to implement the tax procedures code, and on end-September targets for key performance indicators on the revenue administration and on public finance management reforms. We have also re-phased one structural benchmark related to the financial sector (Table 4). We request a waiver of applicability for the end-June quantitative performance criteria on the overall stock of central government debt, domestic arrears, and the general government balance since the relevant data will not be available until early August and we expect to meet these targets.

We believe that the policies set forth in the attached MEFP are adequate to achieve the objectives under the program and stand ready to take any measures that may become appropriate for this purpose as circumstances change. We will consult with the Fund on the adoption of any such actions and in advance of revisions to the policies contained in this MEFP, in accordance with the Fund’s policies on such consultations.

This letter is being copied to Messrs. Dijsselbloem, Rehn and Draghi.

_____/s_____

Antonis Samaras

Prime Minister
_______/s_____

Yannis Stournaras

Minister of Finance
_____/s_____

George Provopoulos

Governor of the Bank of Greece
Appendix II. Memorandum of Economic and Financial Policies

Outlook and Strategy

1. Macroeconomic developments remain broadly in line with program projections. The economic situation is still difficult, with high unemployment entailing exceptionally large social costs. Domestic demand continues to be weak. However, the pace of output contraction has begun to decelerate, liquidity and confidence indicators have strengthened, and lower unit labor costs are improving cost competitiveness. There are tentative signs that exports are beginning to contribute more to the external adjustment, with strong tourism bookings so far this year. In addition, price adjustments have started to accelerate, which will help restore competitiveness and cushion the impact on household income of the recession and ongoing wage adjustment.

2. Against this backdrop, no significant modifications are needed to the program’s macroeconomic framework. We continue to expect annual growth to turn positive in 2014, based on factors such as the recent improvement in economic sentiment and a revival of tourism. The outlook remains uncertain, however, and we will continue to monitor developments closely with a view to revise the framework, if warranted by new developments.

3. We are fully committed to implement our program to stabilize the economy and create the foundations for growth and employment. During this review of the program, we have particularly focused on steps to:

  • Fully implement the fiscal strategy for 2013–14. This is key for restoring fiscal sustainability and eventually exiting the need for external assistance.
  • Modernize fiscal institutions. We have made progress on reforming the revenue administration, aimed at making it more independent, efficient, and accountable for delivering results. We also continue to strengthen public financial management.
  • Ensure a healthy financial sector. We have finalized the recapitalization of our core banks, strengthened the financial sector governance framework, and adopted new tools to resolve distressed household debt.
  • Strengthen competitiveness and productivity. We continue to liberalize regulated professions and improve the business environment by removing unnecessary restrictions. We are initiating steps to further improve labor market functioning.
  • Protect vulnerable groups. We have adopted employment creation programs targeting young workers and jobless households, are strengthening our apprenticeship programs to improve employability, and are improving the targeting of our social safety net programs to the most vulnerable groups.

Fiscal Policy

4. We have made significant progress since 2010 in addressing fiscal imbalances. The adjustment has been one of the largest to date by any international comparison, with a headline primary adjustment of 9.2 percent of GDP during 2010–12. In cyclically-adjusted terms, the fiscal adjustment during this period was about 15 percent of GDP. The 2012 fiscal deficit target was met with a comfortable margin (0.2 percent of GDP). Moreover, we are taking measures to achieve primary balance in 2013. We are fully committed to complete the programmed fiscal adjustment—reaching a primary balance of 4½ percent of GDP by end-2016—to help put debt firmly on a downward path.

5. We are taking steps to ensure full implementation of our fiscal program for 2013–14. As a prior action, we will:

  • Bring forward into 2013, according to the program target definition, some of the property tax collected via the public power company (PPC) by temporarily shortening the pay period for PPC of the revenues it collects in March 2014.
  • Offset overspending by EOPYY to meet fiscal targets in health care for the period 2013–15 by introducing additional “claw backs” in diagnostics and private hospitals. The claw back will be supported by new structural measures in quality control and prices in the coming months. The claw back of overspending in the first 6 months of the year will be collected by September 2013. In the event that the claw back’s effectiveness is not confirmed by this date, we will promptly activate contingency measures (e.g., across-the-board cut in prices, reduction in access of the insured to private providers, and/or introduction of entry fees on contractual arrangements) which ensure that an equivalent amount of savings is obtained. We are setting up an early warning monitoring system to identify slippages and gaps in the healthcare sector so as to facilitate prompt corrective actions going forward.
  • Complete the signatures on the Memorandum of Understanding with the Greek merchant fleet which, together with the tonnage tax, will ensure €140 million accrued in annual revenue in 2013–15.
  • Bring forward to August 1, 2013 through legislation the luxury tax on cars, swimming pools, and airplanes. By end August 2013, we will also introduce a docking fee on leisure boats effective October 1, 2013.
  • Pass legislation to limit the use of untaxed reserve accounts for capital gains by 2015, so as to raise revenue of at least €50 million in 2014.

6. To support our fiscal program and improve the efficiency of our tax system, and in consultation with EC/ECB/IMF staff, we will pass legislation to reform our income tax code and submit to parliament a new tax procedure code, as a prior action.

  • We will pass legislation to introduce a new income tax code. The core objectives of the income tax reform are to simplify the existing tax regime, increase transparency, and remove ambiguities. The reform will be revenue neutral. However, a simplified and more transparent income tax legislation will allow easier administration, and over time encourage tax compliance and ensure more robust revenue collection. The new income tax code will provide for a capital gains tax—including on real estate—of 15 percent. It will also reduce filing requirements, consolidate cross-border merger and reorganization provisions, introduce some provisions to combat (international) tax avoidance, and extend the alternative minimum (presumptive) taxation. Further, by end-September 2013, we will amend legislation to consolidate domestic merger and reorganization provisions into the income tax code and will review further and amend as necessary the provisions concerning withholding of employment income and the advance payment of business taxes, as well as provisions necessary to ensure consistency between the ITC and TPC. And, by end-October 2013, we will adopt all necessary secondary legislation to support timely implementation of the code.
  • We will submit to parliament for adoption by late July 2013, a new tax procedures code (TPC) to consolidate and streamline provisions existing in current legislation and fill legislative gaps in the enforcement of collection methods, mandatory data provision to the tax authorities, interest and penalties, internal review procedures, as well as procedures to combat (international) tax avoidance. To ensure that the TPC will be fully implemented by January 2014, we will complete the following interim actions: (i) by end-July, establish a working group to implement the TPC; (ii) by mid-August, develop a project plan for TPC implementation; and (iii) by end-October, as a structural benchmark, adopt all highest priority secondary legislation necessary to support implementation. By end-October, we will also legislate any changes necessary to modernize the Code of Public Revenue Collection and ensure full compatibility with the TPC reform.

7. We are seeking to introduce a new unified property tax as of January 2014 to replace the PPC levy and FAP:

  • We will establish a working group in July consisting of staff of the revenue department of the MoF, GAO, and the GSPR with a mandate to develop a framework for the new property tax and identify needed actions to ensure adequate collection of the new tax.
  • We have agreed, in consultation with the EC/ECB/IMF staff, on the broad parameters of the framework, including: (i) the definition of the tax base; (ii) broadening the coverage of the tax base to include commercial, industrial and agricultural land and buildings; (iii) the distribution of tax burden across different types of property (residential vs. commercial, and industrial); (iv) only exemptions (focused on hardship cases) that are mutually agreed and clear progressivity; (v) taxing individual properties rather than aggregate holdings by individuals or holdings of property rights; (vi) the taxes to be unified within the new real estate tax (FAP and PPC tax); and (vii) revenue neutrality of the reforms relative to the programmed revenue, net of exemptions, of €2.7 billion (or of €2.9 billion should it be decided to reduce significantly or eliminate the property transaction tax). We have agreed to broaden the tax base, and set the rates consistent with the agreed burden sharing to deliver adequate collections in line with the programmed target.
  • We started the collection of updated comprehensive information on taxpayers’ land and real estate assets (form E9), and will complete this process by end-September 2013. We have also adopted legislation to ensure the availability of cadastral information to tax authorities for information cross-checks.
  • We will issue by end-August a time-bound action plan that identifies immediate steps and resources needed to improve property tax collection rates.
  • As a structural benchmark for end-September 2013, we will adopt legislation on the new property tax for 2014 in accordance with the agreed framework, allowing property rights to be taxed on a transitional basis until end-2014. The new property tax regime for 2014 will be calibrated to collect the programmed revenue, net of exemptions, of €2.7 billion to replace FAP and the PPC tax (or of €2.9 billion should it be decided to reduce significantly or eliminate the property transaction tax). However, since it is an ambitious undertaking to implement a new property tax in a short time frame, if it proves impossible to implement with a very high degree of certainty the new property tax regime that achieves the programmed revenue in 2014, based on an assessment undertaken jointly with EC/ECB/IMF staff, we will take all necessary actions (including the extension of already legislated measures) to compensate.
  • Over time, we will fully align property assessment values with market values. To this end, we will develop by end December 2013 a medium-term reform plan that outlines actions needed: (i) by January 2015, to adjust the zone prices to reflect more accurately real estate market conditions and to change the tax subject (individual properties rather than aggregate holdings by individuals or holdings of property rights); and (ii) by January 2016, to align the property assessment values with market values.

8. To improve transparency and fiscal control, we will rationalize existing tax incentives, which are disbursed across different legislative documents. These incentives will be consolidated into the new income tax code by end-September via an amendment. The reforms will replace existing tax incentives with standard tax incentives such as an investment allowance, an investment tax credit, and an accelerated depreciation deduction. We will quantify tax incentives provided as tax expenditures under the new law and record them as budget allocations starting with the 2014 budget to enhance transparency and control revenue losses.

9. To prevent the accumulation of debt in the renewable energy account (RES) and restructure the electricity market, we are undertaking the following reforms. As a prior action, following the recommendation of RAE, we are increasing the RES Special Levy from the current average of €9.30 per MwH to €14.96 per MwH, and have fully liberalized all end-user tariffs as provided by law. Now we will monitor developments closely, including the number of new producers in the renewable energy market, to ensure that the RES deficit remains in line with targets, and adjust the Renewable Energy Special Levy every six months, as necessary, to eliminate the debt in the RES Account by end-2014. Starting from end-June 2013, we will provide EC, ECB, and IMF staff with monthly tables on the stock of arrears. The Government Cabinet will approve in July the PPC restructuring and privatization plan, including the timeline to complete the process by Q1–2016.

10. To meet our medium-term fiscal targets, we have started preparation of the medium-term fiscal strategy for 2014–17. We are identifying necessary measures to close projected gaps in 2015–16. This would include a review of social security contributions, with a view to eliminating exemptions, starting 2014. We will have a preliminary draft MTFS in early September.

11. We are committed to public administration reform. This is necessary to build a more effective civil service and support our medium-term fiscal targets. This is an area where we have fallen well behind schedule, and we are taking decisive steps to catch up.

  • To this end, consistent with our program commitments, we estimate that we have met our end-September targets on mandatory exits. In fact, we have expanded our reform program to facilitate reallocation of staff to where they are needed most, for instance, by transferring teachers from secondary to primary education by end August. We will also address the problem of contractual staff in judicial litigation to obtain permanent positions. These were not part of the program before.
  • We are undertaking the following efforts within the existing framework of the mobility and exit schemes and staffing plans:
  • As a prior action, we will issue all necessary legal acts so as to place at least 4,200 ordinary employees in the mobility scheme by end-July. We will complete shifting at least 12,500 ordinary employees to the scheme by end-September and at least another 12,500 ordinary employees to the mobility scheme by end-December 2013. Consistency of the mobility targets with the exit targets will imply that a substantial fraction of those in the scheme would exit. Employees placed in the mobility scheme will have their wages cut to 75 percent. They will be assessed, within a centrally-defined evaluation framework to be established by end-September, before reallocation to new positions or exit (if they fail to be reallocated).
  • We have established minimum monthly targets on the number of people who will be continuously in the mobility scheme until they exit from the public sector (TMU ¶25). We will begin with a significant upfront transfer of 2,000 ordinary employees into the mobility scheme destined for eventual exit. For any additional employee that exits from other sources, the numbers will be reduced accordingly, but only after the cumulative exit target for Q1 2014 has been met.
  • Given implementation delays to date and to meet exit targets for early next year, we will change the legislation on the mobility scheme to reduce the time spent in the scheme from 12 months to 8 months. Consequently, we will front load the exit targets for the second half of 2014 (TMU ¶25), and will maintain the programmed definition for exits. To support the end-2013 cumulative exit target of 4000, we will accelerate our efforts in addressing the disciplinary cases and further evaluating other entities.
  • We are committed to establish a permanent tool for personnel reallocation to enhance the human resources management. To this end, we will establish quarterly minimum targets for the mobility scheme for 2014 in September 2013. The Government will hire one new employee for each exit as a result of (i) disciplinary cases; (ii) due diligence evaluation of legal entities of public and private law leading to mergers and abolishment; (iii) voluntary exits from the mobility scheme (excluding personnel within 3 years of retirement); and (iv) the elapse of an 8-month period in the mobility scheme.
  • While there has been a delay in preparing staffing plans, we will complete 400,000 positions by end-September, and accelerate completion to maintain the year-end deadline for general government. We are also working on developing a staff assessment system. By end-August 2013, we will define detailed hiring plans for 2013 that reflect government priorities, and prepare a staffing and hiring plan to be included in the budget for 2014. By end-September, we will bring all employees into the Census Database and the Single Payment Authority, to complete our monitoring framework for government employment and the wage bill.
  • Finally, as of July 2013, we have begun publishing on the government website detailed monthly data on ordinary staff (full-time public sector employees) and other staff (contractual employees, political appointees, etc.), the number of employees in the mobility scheme, the number of exits, and the number of pending disciplinary cases.

12. We are taking steps to expand employment and training programs and to improve targeting of our social safety net:

  • Employment and training programs. We have launched the youth internship and employment voucher program that supports six-month vocational training and internships for 45,000 beneficiaries (see ¶14 of the May 20, 2013 MEFP for a description of the program). We plan to announce later in 2013 a social community work program that targets about 50,000 individuals from jobless households, for which we are seeking dedicated financing from EU structural funds. Finally, we plan to increase the number of entrants into apprenticeship and vocational training programs, while seeking to strengthen the quality of such education through curricula improvements and ensuring better coordination between businesses and the apprenticeship professional schools.
  • Social protection. We are launching a Health Voucher Program that will provide 100,000 long-term uninsured citizens with access to primary healthcare services and, with funding from the European Social Fund, we plan to extend the program to more beneficiaries while expanding the coverage of healthcare services. We will start making payments in July on the new child benefit law. Preparations are underway for implementing the income-tested program that targets long-term unemployed (to start no later than 2014). We are also undertaking a wide-ranging review of the effectiveness of our income support programs in targeting the truly needy. To that end, with assistance from the World Bank, we intend to launch as a high priority a pilot means-tested income support program (minimum guaranteed income) by January 2014, and aim to roll it out nationally by 2015. Further, we seek to fill any other gaps in our social safety nets that become apparent, within the overall existing budget envelope.

Fiscal Institutional Reforms

Revenue administration

13. We are bolstering the autonomy of the revenue administration and moving forward with organizational reforms. With the passage of legislation in May, we have provided greater flexibility to the Secretary General of Public Revenue (SGPR) over budget allocation and organizational structure and for hiring and grading SGPR staff. Implementation of this legislation is advancing:

  • We are proceeding with plans to integrate into the Revenue Administration the Internal Affairs Department (IAD) of the MoF and the revenue-related functions of the General Secretariat for Information Services (GSIS) and the Corp for the Prosecution of Economic Crimes (SDOE). Specifically, as a prior action, we have issued ministerial decisions for the transfer of the IAD and the Directorates for Computer Applications (excluding the sections for Budget and Public Expenditure, Payroll, and Pensions) and for Computer Data Entry and Control of the GSIS. These ministerial decisions allow us to transfer all functions, staff, and budget allocations of the relevant units to the revenue administration.
  • We have established a new Strategic Planning and Financial Control Directorate, which will manage the budget of the revenue administration starting with the preparation of the SGPR’s 2014 budget, support the SGPR in project management, and monitor progress with reform and KPI implementation. By September 2013, we will have staffed the Directorate to make it fully functional.
  • By end-July, we will identify the functions and staff of the SDOE that will be transferred to the revenue administration by October 2013 (TMU ¶28).
  • We are screening the legislation relevant for identifying the remaining constraints to the delegation of powers to SGPR, and in early-August, we will issue a report proposing solutions and, by end-September, will adopt amending legislation.
  • We have selected a 5-member Advisory Council to the SGPR, which comprises 3 domestic experts and 2 high-level external experts with significant international experience in carrying out revenue administration reforms. The first meeting of the Advisory Council will be held before the end of July, and a regular bi-monthly schedule of meetings has been established for the first year.
  • To ensure timely and complete implementation of upcoming reforms, we have hired an external consultant to advise us on the project management of organizational reforms. We have prepared a timeline for the completion of the October structural benchmark that requires approval of the new organizational structure, staffing numbers, grading system, and qualification and appointment processes of the revenue administration. We have prepared a strategic plan, and by end-October, we will also prepare a 2014–15 business plan for the revenue administration.

14. We are committed to strengthening Anti Money Laundering (AML) procedures to bolster tax compliance and fight evasion. To take full advantage of the existing AML legislation, we will amend it by July 2013 to (i) ensure that the General Secretariat of Public Revenues (GSPR) is represented at the Board of the financial Intelligence Unit (FIU); (ii) enable the GSPR to obtain from the FIU information relevant to individual tax audits and debt collection cases; (iii) require that information on relevant cases of failure to pay confirmed debt over €50,000 be transmitted to the FIU (for purposes of implementing the AML law); and (iv) require the FIU to promptly inform the GSPR when assets are frozen in relation to the laundering of proceeds of tax crimes.

15. We are continuing to improve the efficiency of revenue administration.

  • Audit. We have appointed new management and an adequate number of supervisors at the high-wealth individuals (HWI) audit center unit, which will help speed up the assignment of tasks and monitoring of work progress. We have issued audit orders on more than 250 capital remittance cases, and we will issue by end-September audit reports on more than 15 cases based on indirect audit methods.
  • Debt collection. We started a reorganization of the Large Debtor Unit (LDU) to focus its work on collectable debt. To this end, we have issued a circular specifying the criteria to determine fresh debt and have assigned 30 staff to the collection of fresh debt. Finally, we have adopted legislation for the creation of an indirect bank account register that by early August will start providing authorized revenue administration personnel access to information about bank accounts held by taxpayers. We have appointed a project manager and initial staffing of a new internal review unit. The aim is to have this unit established and operational by end-August.
  • Collection efficiency. Collection efforts still need to be strengthened. To this end, as a prior action, we will submit (for adoption by late July) the legislation to close effective August 1, 2013 for new entrants any installment or deferred arrangements for payment liabilities arising from audit assessments other than entry into the fresh start and basic installment schemes. We have amended Law 3888/2010, as of January 2013, to ensure that taxpayers cannot avoid an audit by requesting a settlement from the moment when the taxpayer was selected for audit to the completion of an audit by the issuance of the audit report and tax assessment. This will ensure that all indications of substantial undeclared income must be examined during the course of the audit. To ensure that the suspension of the payment obligation for disputed tax amounts from pending court cases is only granted in cases of financial hardship, we have issued the joint MoF/MoJ decision required according to Article 203 of the Administrative Procedures Code, amended by Law 4051/2012. Going forward, we will abstain from extending the deadlines for the filing and payment of taxes. In addition, we will publish every December the schedule for the following year for filing and payment of all taxes and levies for the state government and social budgets.
  • Personnel management. By end-July, we will complete the external hiring of 186 auditors. To ensure that the number of such hires reaches our target of 200 by end-October, we will revise Law 4038/2012 to provide that short-listed candidates who were not selected are put on a waiting list to substitute for selected candidates who did not accept their job offers. We have also completed the certification of 2,000 internally selected auditors, and by early September will appoint a team of full-time trainers who will complete the basic audit training of all these auditors and the new external hires by mid-2014.
  • VAT refunds. To speed up the processing of tax refund claims, by end-September 2013, we will adopt legislation introducing a 90-day deadline for VAT refund payments and a 90-day deadline for income tax refund payments. By end-September 2013, we will (i) optimize the VAT refund risk analysis system; and (ii) issue a circular guiding VAT refund audits by local tax offices. By end-September 2013, we will also introduce a risk analysis system for processing income tax refunds, including by prioritizing the largest refund claims.

16. The new tax and SSC installment schemes have been launched. For the processing and verification of applications for the tax installment schemes, we have assigned additional staff to collection in the largest tax offices. We are introducing an electronic application system for tax installments, and will start collection before end-July. An electronic application system for SSC installment arrangements has been introduced by IKA and OAEE, and this process for remaining SSFs will be completed by end-2013. To monitor performance of the fresh start and basic installment schemes, we have developed a set of indicators (TMU ¶29), which will be published monthly.

17. We are undertaking initiatives to improve collection of social security contributions. We will adopt by end-July legislation to establish the organization of a new joint collection center for SSC debt (KEAO). Following adoption of this legislation, by end-August 2013 we will assign 200 staff to KEAO, and by end-2013 complete the assignment and external recruitment of 400 additional recovery officers to boost its debt recovery capacity. In August, we will adopt secondary legislation to establish a procedure to quarantine uncollectable debt, create a single SSC debt database, and transfer €4.2 billion of SSC collectable debt to KEAO. To improve SSC collection, we have introduced key performance indicators for enforcement and collection of current obligations and arrears (TMU ¶31).

18. Information on June 2013 KPIs on tax administration is not yet available, but shortfalls are very likely, and we have taken remedial actions (Table 5). Shortfalls are likely to be significant in debt collection and collection of assessed amounts, as well as on audits of assets of managers of local tax offices and auditors. Measures described in ¶15 above on collection efficiency will address slippages in the collection rate indicators. Furthermore, we have requested access to bank information to complete the audits of assets of managers of local tax offices and of auditors and by end-July will complete 35 cases for which such information has been provided. We expect that all cases will be completed by mid-August after the integration of the IAD in the revenue administration. The weakening of the number of audits at the HWI unit and of the full-scope LTU audits immediately after the appointment of new supervisory teams requires close monitoring. Therefore, we have set targets for these indicators for end-September 2013 (structural benchmark).

Public financial management

19. General Directorates for Financial Services (GDFS) are now operating in most line ministries and commitment controls have been strengthened.

  • GDFS. The recently issued joint ministerial decisions clarified the organizational structure of the GDFS and cleared the way for preparing staffing plans for the units. We will pass by end-July 2013 legislation to establish permanent procedures for the appointment of accounting officers in the context of the reorganization of the ministries expected in September 2013. In the meantime, vacant accounting officers’ positions will be filled with temporary acting appointments.
  • Commitment registers. We have issued a circular requesting all General Government entities to send to GAO queries they have concerning reporting requirements on the commitment registers by end-July. By end-September, we will send an interpretive circular responding to these queries with a view to eliminating discrepancies in reporting between commitment registers and surveys. We have issued a circular to suspend state transfer payments starting in October 2013 for those entities—having more than €1 million in spending—that do not report on commitment registries. In the context of the revision of the organic budget law, we will amend the legislation (Law 3871/2010) to introduce further penalty procedures to General Government entities that fail to provide timely reporting to GAO.

20. We continue to strengthen the budget process. To start the new budget preparation cycle, we have issued to line ministries a circular and a budget preparation timeline to guide completion of the 2014–17 medium-term fiscal strategy by October 1, 2013. We have established a working group to prepare the planned amendments to the organic budget law and explore the scope for further strengthening the budget process (see MEFP of May 20, 2013, first bullet of ¶9), and will adopt these amendments by end-October 2013. We will issue by end-July a Joint Ministerial Decision establishing a common methodology for the preparation and adoption of local government budgets to prevent delays and ensure consistency with the MTFS targets. We have set financial targets for the 12 reclassified state-owned enterprises (SOEs) and have published their budget execution for the first quarter of 2013 relative to those targets. We have also published the budget execution for the first quarter of 2013 relative to their targets of 27 Legal Entities with expenditure over €20 million.

21. We are addressing institutional shortcomings that continue to cause delays in payment processes and in clearance of arrears.

  • We have issued a joint ministerial decision instructing fiscal audit offices to process all payment requests within 20 days, and set deadlines for each stage of the payment process.
  • We have adopted legislation to move responsibility for payment execution from tax offices to fiscal audit offices and by end-September we will submit to the Council of State a Presidential Decree with the new administrative processes needed to implement this reform by January 2014. By end-October, we will (i) make necessary changes to our IT and administrative processes so that payment orders and accompanying documentation can be authorized electronically and that fiscal audit offices are in a position to execute payments on a pilot basis starting in November, and (ii) put in place statistical reports to enable follow-up on progress
  • By end October, we will prepare a medium-term action plan for meeting the requirement of the Late Payment Directive that will include: (i) an analysis of the IT system; (ii) a review of the legal framework on payment processes with a view to simplify it considerably, and ensure that line ministries are fully versed in the documentation that needs to accompany each payment request; and (iii) standardized thresholds above which different level of approval are required across all line ministries.
  • By end-December, the Hellenic Court of Auditors (HCA) and GAO will produce a joint note on the role and scope for streamlining of the HCA’s ex ante audits in financial control following the review of the effectiveness of the HCA’s ex-post audit pilot scheme expected in November with the assistance of the Dutch Court of Audit.
  • We have appointed teams to conduct by end-August focused audits of the commitment registers of SSFs comprising EOPYY, starting with IKA, OPAD, OAEE, TAYTEKO, and ETAA. These audits will help identify key issues that will form the terms of reference for a subsequent comprehensive external audit of EOPYY’s outstanding liabilities.

22. Measures are underway to strengthen the reporting requirements of general government entities of systemic importance. To ensure consistent monitoring of targets in the SSFs sector, we will require pension and employment funds, EOPYY, and hospitals to provide monthly reports in accordance with reporting templates agreed with GAO. These templates will enhance transparency of the social budget by covering monthly cash outturns, accounts receivable and payable, and arrears. The provision of data to GAO will take place within three weeks of the completion of the month, and it will start by October 2013. To improve the internal consistency of the medium-term budget forecast, we will pursue the examination of the existing forecasting and accounting procedures and further take any necessary action, which will enable us to begin reporting projected state transfers to each subsector as separate items in line with the templates agreed with GAO.

23. The numbers for the June KPI targets are not yet available, but we expect them to have been met (Table 6). For May, 91 percent of general government entities reported their arrears through the e-portal and 77 percent reported a comprehensive set of information from their commitment registers (compared to a June floor of 80 and 65 percent, respectively) with a discrepancy of less than 2 percent (compared to a June ceiling of 10 percent). We have also set targets for these indicators for end-September 2013 (structural benchmark).

Financial Sector Policies

24. The recapitalization and consolidation of the banking sector is in its final stages:

  • The recapitalization of the four core banks is now complete. Three banks raised the minimum 10 percent in private sector capital required to remain under private sector control. A fourth core bank is under the control of the HFSF. The banks have conducted another round of liability management exercises, leading to an increase in Core Tier I capital of €585 million for the four core banks.
  • We invited international and domestic bids for the sale of the two bridge banks. This disposal will be completed as a prior action. The decision on the transactions will take into consideration the public interest, financial stability, as well as the protection of HFSF assets.
  • The two remaining undercapitalized non-core banks were given an extended deadline to raise their entire capital needs from private sources. One bank managed to raise adequate private capital. The second bank has until July 26 to complete this process; and if unsuccessful, we will immediately proceed with its resolution through a purchase and assumption by a core bank.
  • We will develop the implementation plan for rationalizing the cooperative sector, including Panellenia Bank, as part of our comprehensive banking sector strategy. By end September, we will take the legal and regulatory steps necessary to implement the strategy for the cooperative sector, taking into account the findings of the BoG report “Assessment of the Greek Cooperative Banking Sector” (February 2013).
  • We will undertake to place a substantial equity stake in Eurobank to a privately owned strategic international investor by end-March 2014. To this end, we will contract consultants by end-August 2013, develop an evaluation metric for potential investors by mid-October 2013, and allow them to start the due diligence process no later than end-November 2013. We will also structure this placement with a view to incentivize participation of investors who want to obtain a majority stake in the future.

25. We will complete a comprehensive banking sector strategy as a prior action, in consultation with the EC/ECB/IMF. The strategy provides a roadmap of policies needed to safeguard financial stability and ensure that the sector is competitive and well-placed to maintain a flow of financing to the real economy to support the recovery. We are committed to a four-pillar banking sector while we own a majority stake in the core banks. Therefore, the strategy is built around four core banks run on a purely commercial basis, with no role for directed lending or credit targets. It will propose a path for the prompt disposal of HFSF shares to the private sector in accordance with the existing legal framework. Now that the recapitalization of the four core banks is complete, we will review by end-September 2013 the functioning of the HFSF, in cooperation with the EC/ECB/IMF staff. Any adaptation will take into consideration its evolving tasks, in line with the program and the long-term interests of the banking sector and taxpayers.

26. Preparations for the supervisory stress test and the distressed credit operations review are well underway. We have established a timeline and the modalities of the stress test to be completed by end year, including objectives, scope and output, with our counterparts from the EC/ECB/IMF. The exercise will be overseen by a steering committee comprised of representatives from the BoG, EC, ECB, IMF, and EBA. We have engaged a consultant to conduct the asset quality review, with an interim deadline of completion by end October 2013. The distressed credit operations review is scheduled to be completed by end-September 2013.

27. We will take no fiscal policy actions that would undermine the solvency of banks. In particular, the banks will not be required to pay any dividends on preference shares, or fees or taxes in lieu of this, unless they have distributable profits (excluding profits from acquisitions and selling of subsidiaries abroad), and the BoG has given its consent, confirming that such a payment would be compatible with the preservation of adequate capital buffers going forward.

28. We are committed to preserve sufficient banking system liquidity in line with Eurosystem rules. The BoG, following the procedures and rules of the Eurosystem, stands ready to continue disbursing adequate and appropriate emergency liquidity support in a timely manner, if needed. Over the medium term, banks are expected to achieve a sustainable funding model by broadening their funding base and reducing their reliance on extraordinary central bank liquidity support and government guarantees. To this end, after completion of the recapitalization exercise, the BoG will request banks to provide standardized quarterly balance sheet forecasts (funding plans). These plans will serve as a tool for the BoG and the ECB to monitor this process and assess, in cooperation with the EC and IMF, whether the banks’ plans are at the aggregate level consistent with the program’s macroeconomic framework.

29. We continue to improve the management of assets under liquidation. We have made significant progress in enhancing the legal, as well as the regulatory and operational frameworks governing assets under liquidation. The new legislation and regulatory framework provide us with additional tools to deal with these assets, including options to employ liquidation entities and restructuring tools. On an operational level, we have outsourced, in certain cases, asset recovery to collection companies with significant improvement in results. To ensure an effective utilization of our enhanced tools, we will develop, by end-July, an implementation plan outlining further steps to improve collections and establish targets.

30. We have made significant progress in strengthening bank governance. The Relationship Framework Agreements between the HFSF and the core banks have been approved by the HFSF’s General Council, signed by the parties, and published. The core banks are implementing the recommendations of the monitoring trustees contained in their first quarterly reports. We have initiated a review of our supervisory model to bring it in line with international best practices and consistent with the Single Supervisory Mechanism guidance, we have started with the sanctioning toolkit, and aim to complete this process by end-2013. Further, Law 3864/2010 will be amended so that all decisions of the General Council and the Executive Board are meant to be in accordance with the HFSF’s mandate, if taken in accordance with the law and with a view to protecting the public interest, in particular the financial stability, in accordance with the commitments of the Hellenic Republic set out in Law 4046/2012 (FEK A 28), as these commitments are updated from time to time in accordance with paragraph 5 of the same law.

31. We have adopted and enhanced tools to resolve distressed household debt. The “Facilitation Program” has been adopted by Parliament, and the necessary regulations to implement it will be put in place by end-August 2013. The amendments to Law 3869/2010 aimed at encouraging out of court settlements for distressed household debt (such as allowing for a decision on an out-of-court settlement to be adopted by a specific majority of creditors, and introducing minimum debt payments in the period between filing of a petition and the court hearing) have also been adopted by Parliament. Further, by end-September 2013, we will adopt definitions for terms such as “acceptable living expenses” and “cooperative borrowers,” as guidance for the judiciary and banks, with a view to protect vulnerable households.

32. We will continue monitoring closely the resolution of distressed debts for households, SMEs, and corporates. Building on the significant achievements toward reforming insolvency regimes, further steps will be taken in order to deal with the private sector debt overhang, and to stem the rise of NPLs—factors that have contributed to the stifling of credit to the real economy:

  • We are establishing a working group to identify ways to improve the effectiveness of debt resolution processes for households, SMEs, and corporates. We will by end-July 2013, in consultation with EC/ECB/IMF staff, identify key bottlenecks and, by end-October 2013, with their technical assistance, propose concrete steps for enhancements in this area.
  • Using the review of banks’ distressed credit operations as input, the BoG will issue, by end-2013 and in consultation with banks and EC/ECB/IMF staff, a time-bound framework for banks to facilitate settlement of borrower arrears using standardized protocols. These include assessment procedures, engagement rules, defined timelines, and termination strategies. In addition, the BoG will require banks to present, by mid-September 2013, a strategy for improving their distressed credit operations (e.g., by strengthening internal arrears management units, and contracting external work-out specialists) and, by end-November 2013, submit a comprehensive operational plan that will address the shortfalls identified in the review. While we will refrain from adopting new or modifying existing debt restructuring schemes, we will undertake the first assessment of the effectiveness of the Facilitation Program within six months of launch.

33. The government intends to establish the Institution for Growth (IfG), a non-bank financial institution, to support innovation and growth by catalyzing private sector financing, especially for SMEs, while minimizing fiscal risks. The IfG will use its expertise and that of its sponsors, as well as funding ability and will operate to ensure a sustainable fund, while supporting public policy objectives. The ongoing deleveraging by banks has exacerbated the economic contraction and curtailed access to credit, especially for SMEs. The IfG will: (i) provide debt financing for SMEs; (ii) provide equity capital to SMEs having significant growth potential, and to private equity and venture funds; (iii) provide debt or equity financing for infrastructure projects; (iv) where it provides debt financing, make such loans available only under co-financing arrangements with a significant participation by commercial or cooperative banks; (v) lend and invest at market terms; (vi) not accept deposits; (vii) not accept capital contributions or other financing from domestic financial institutions owned or controlled by the public sector, including HFSF; and (viii) limit any guarantees to a level not exceeding the Hellenic Republic’s (HR’s) capital subscription. The HR will seek to become a minority shareholder eventually, with its own capital contribution limited to €350 million over the next three years. Shareholders other than the HR will have to agree on the appointment of the management of the IfG. The IfG board will have a strong international presence to ensure a high degree of independence. Finally, overlapping functions between ETEAN and IfG will be avoided, and some of these functions may be performed by the IfG upon an HR request and subject to IfG investor’s approval.

Structural Reforms

34. We are advancing the liberalization of regulated professions and will assess the implementation to ensure that what has been completed so far is delivering the desired results.

  • We will adopt a new Code of Lawyers by end-July, which eliminates unjustified restrictions on legal services and aligns our legal framework with international best practice. We have issued implementing legislation to complete the liberalization of a number of professions, including certified auditors and actuaries (TMU ¶39). With these steps, the remaining list of regulated professions from the end-2012 structural benchmark has now been addressed, except for firms trading petroleum, geo-technicians, chartered valuers and electricians (for which the implementing ministerial decision will be issued at the latest by end-September 2013) and engineers. On the latter, we have already identified the reserved activities for all engineering specialties. With HCC assistance, we will determine areas where reserved activities for such specialties are justified from the public interest perspective, and remove all excessive restrictions by end-2013.
  • Continuous monitoring of regulated professions is key to ensure their de facto liberalization. To that end, we have tasked KEPE to complete by end-July 2013 a study on the degree of effective liberalization of 20 economically important professions, including a review of new entries and exits and price changes. We are committed to act promptly, no later than end-September, to address any remaining excessive restrictions identified. Moreover, given the ongoing reforms in this area, the time needed for legislative changes to deliver their intended effect, and the possible persistence of unidentified legal or regulatory restrictions, we will conduct by end-2013 an in-depth follow-up review of the reforms of regulated professions, including interviews and surveys of stakeholders, with the support of outside experts. Finally, the monitoring unit for regulated professions at the Ministry of Finance will, in consultation with the EC/ECB/IMF staff, develop a list of high-frequency indicators by October 2013 to assess on an ongoing basis the impact of reforms in this area, and publish these indicators on a regular basis to strengthen public accountability.

35. Promoting competition and reducing the administrative burden are an ongoing priority.

  • In the retail sector, to increase competition for over-the-counter products sold in pharmacies, we have replaced the previous system of fixed margins with maximum ones. By end-September 2013, we will allow the sale of selected products outside of pharmacies. We will adopt by end-July a new law to remove restrictions on discounts and increase the flexibility of retailers’ opening days. In the rental sector, we have created a working group to complete by end-August a review of the current regime for commercial rentals, and will adopt legislation to address existing rigidities by end-September 2013. In the transportation sector, we will liberalize long-distance bus transportation services (adopt legislation to open lines for competition, and streamline mandatory discounts) (August 2013), we have rationalized mandatory discounts for ferry tickets and will further increase the flexibility for ferry transportation (October 2013), and streamline public service obligations (PSO) for regional flights to bring down costs (i.e., reducing frequency in the winter and removing PSO in the tourist season when existing contracts expire) (October 2013).
  • To reduce unnecessary regulatory and administrative burdens, with OECD assistance we are conducting two separate in-depth studies: on regulatory barriers to competition in four key sectors (tourism, retail, building materials, and food processing), and on administrative burdens in thirteen sectors. An initial screening of legislation under both studies has identified a number of areas that need attention. We are committed to adopt by end-2013 legislation to implement the specific recommendations for the first study.
  • To facilitate trade, by end-July 2013, we will expand to imports the 24/7 working shifts in the Athens airport and the two shifts in the Piraeus port, which are already in place for exports. In addition, by end-November 2013, we will introduce an electronic submission system for all import declarations. With assistance from the World Customs Organization, we will assess the results of pilot customs offices in Athens airport and Piraeus port, including the effectiveness of the risk-based system for the release of export consignments (by end-2013), adopts the optimized procedures in the Athens airport and Piraeus port custom offices by January 2014, and extend these procedures fully nationwide by end-2014.
  • To facilitate investment, by end-2013 we will pass legislation to comprehensively streamline the system of investment licenses and permits (operational, environmental, land use and use of public infrastructure licenses) by reducing their number, the approval time and procedures (one stop shop, certification by independent bodies) in line with international best practices. In parallel, we will also establish a tracking system to monitor implementation and ensure accountability.
  • To reduce the costs of doing business, we will eliminate or transfer nuisance taxes and levies (and the associated spending) to the state budget (September 2013 structural benchmark). Further, we will adopt legislation to reform the system of social security contributions to reduce the rates by 3.9 percentage points. These will be phased in on January 1, in 2014, 2015, and 2016, and will be revenue neutral and preserve the actuarial balance of the various funds (November 2013 structural benchmark).

36. We will build on our success in liberalizing labor markets by focusing on remaining areas where excessive restrictions remain. Excessive rigidities remain in some areas, notwithstanding the steps taken under the program. In addition, some sectors (such as maritime and private education) have been shielded from labor market reforms. Against this background, and consistent with existing program commitments, we will take the following actions:

  • We have issued a ministerial decision to clarify that individual labor agreements are allowed in the maritime sector when the sectoral collective agreement has expired, and we have issued a circular to clarify that law 4046/2012 on severance payments and Cabinet Act (FEK 38/28-2–2012) on dismissals apply to the private education sector.
  • By mid-July, 2013, we will adopt a law to establish a new minimum wage mechanism so that the statutory minimum wage and minimum daily wages are set by the government, consistent with our commitments outlined in the MEFP of December 21, 2012.
  • To attract investment, support job creation and growth, and safeguard the right to work, we will complete a study for discussion at the next review, comparing Greece’s regulations on temporary employment, scope of temporary employment agencies, and collective dismissal rules and procedures with those in other EU member states. Drawing on this review, we intend to identify any appropriate reforms needed to bring our legal and regulatory framework in these areas into line with EU best practices. On this basis, we will prepare, in consultation with social partners, a draft set of reforms by end-November and implement such reforms by end-2013.
  • Looking forward, to reduce the administrative burden on businesses we will significantly streamline labor reporting requirements by end-September, following a comprehensive review to be completed by end-July. In the context of this work we will adjust sanctions for violations of labor law by end-July, by better linking punishments to the severity of violations, and will focus detection on more severe cases. Finally, in light of the many recent labor reforms introduced during the program, we will compile a Labor Code by end-2013, which will eliminate possible inconsistencies and increase transparency.
  • By end-October 2013, we will assess, in consultation with stakeholders, the impact of recent labor reforms in the maritime sector, and adopt further steps to strengthen its competitiveness, including by increasing the flexibility of labor arrangements.

37. We have made further progress on judicial reforms and have strengthened our anti-corruption framework:

  • Judicial reform. We have continued to reduce the case backlog (both tax and non-tax), and are publishing quarterly data on court performance. To further improve the efficiency of our court system, we will (i) by end-July 2013, present to the EC/IMF/ECB staff an assessment of the operation of magistrates’ courts; (ii) by end-September 2013, reallocate judges to the administrative courts, having in mind the backlog reduction needs, and adopt an action plan to reduce civil and commercial case backlogs; (iii) by end-October 2013, undertake an analysis of court fees for civil and commercial cases; and (iv) by end-December 2013, undertake an analysis of the enforcement framework for civil and commercial decisions. However, our preparation of amendments to the Code of Civil Procedure has been delayed and will now be presented to EC/ECB/IMF staff by end-September 2013.
  • Anti-Corruption. Following up on our publication of an anti-corruption plan, we will present to EC/ECB/IMF staff by end-July 2013 draft legislation to bring our anti-corruption legal framework in line with relevant international standards (delayed from the program target of submission to parliament by end-June). Following the recent appointment of a National Anti-Corruption Coordinator, and the establishment and staffing of his office, we will, by end-July 2013, start the implementation of all outstanding actions in the anti-corruption plan, initially scheduled for the period March-July 2013.

38. We continue to make progress in preparing assets for privatization, although delays in sales have occurred. The failure to attract a bidder for the natural gas company (DEPA) will cause a delay of 2013 receipts relative to program assumptions. Nonetheless, we will press forward with sales of other privatization assets, and will evaluate progress in the September review.

  • Our focus in 2013 is to finalize the sale of OPAP and the State Lotteries, as well as several smaller corporate transactions and several sales of real estate assets, and to re-launch and conclude as soon as possible the sale of DEPA (followed by HELPE). For the State Lottery transaction, the required SPV will be set up before end-July 2013. We expect to finalize the OPAP sale by end-September 2013. To compensate for some of the delays, we will increase the stakes in the ports to be sold and accelerate their tenders.
  • We continue to take actions to prepare assets for sale, including putting all regulatory frameworks in place, taking all necessary steps to complete the clearance for state aid, and transfer the quarterly batches of 250 real estate assets to the HRADF.

39. To minimize further delays in privatization and liquidation of entities that cannot be privatized, we will take the following steps as a prior action: (i) formally announce a restructuring or resolution of ELVO, HDS, and LARCO, with a view to completion by December-2013; (ii) issue the five year pricing policy (for the period 2014–18) for EYATH (water tariffs); and (iii) adopt legislative acts permitting the payment of arrears owed to EYDAP and EYATH directly from the arrears clearance program (the Expression-of-Interest for EYDAP privatization will then be issued in Q4 2013). In addition, and subsequent to meeting the prior action, we will validate the amount of payment arrears to the two water companies by end-August, and clear these arrears by end-September. We will also issue the Joint Ministerial Decision to shift the second parcel of 250 real estate assets to the HRADF.

Table 1a.Greece: Quantitative Performance Criteria and Indicative Targets, Dec., 2012–Jun., 2013(Billions of euros, unless otherwise indicated)
201220132013
Dec-12Mar-13Jun-13
Progr.ActualProgr.ActualProgr.Actual
Performance criteria
1. Floor on the modified general government primary cash balance 1/−3.8−3.31.51.8−1.2
2. Ceiling on state budget primary spending 1/56.855.413.911.826.024.1
3. Ceiling on the overall stock of central government debt340.0311.4347.0313.3347.0
4. Ceiling on the new guarantees granted by the central government 2/0.20.10.20.20.00.0
5. Ceiling on the accumulation of new external payments arrears on external debt contracted or guaranteed by general government 3/0.00.00.00.00.00.0
6. Ceiling on the Stock of Domestic Arrears (narrow definition)3.62.93.02.62.0
Indicative targets
7. Ceiling on the Stock of Domestic Arrears (General Government Definition)8.07.64.57.13.0
8. Floor on privatization receipts 4/3.20.00.10.11.10.1
9. Transfers to the Mobility Scheme (employees, in thousands) 4/12.50.0

Applies cumulatively from start of the target’s calendar year.

Applies cumulatively from Oct 1, 2012. As of the end-June target, applies cumulatively from April 1, 2013.

Applies on a continuous basis from program approval.

For 2012, cumulative from program approval. For 2013, cumulative January 1, 2013.

Applies cumulatively from start of the target’s calendar year.

Applies cumulatively from Oct 1, 2012. As of the end-June target, applies cumulatively from April 1, 2013.

Applies on a continuous basis from program approval.

For 2012, cumulative from program approval. For 2013, cumulative January 1, 2013.

Table 1b.Greece: Quantitative Performance Criteria and Indicative Targets, Sep., 2013-Dec., 2017(Billions of euros, unless otherwise indicated)
20132014201520162017
Sep-13Dec-13Dec-14Dec-15Dec-16Dec-17
Performance criteria
1. Floor on the modified general government primary cash balance 1/−0.8−0.3
2. Ceiling on state budget primary spending 1/38.853.2
3. Ceiling on the overall stock of central government debt335.0335.0
4. Ceiling on the new guarantees granted by the central government 2/0.00.0
5. Ceiling on the accumulation of new external payments arrears on external debt contracted or guaranteed by general government 3/0.00.0
6. Ceiling on the stock of domestic arrears (narrow definition)1.00.0
7. Floor on Privatization Receipts 4/0.9
Indicative targets
1. Floor on the modified general government primary cash balance 1/2.03.65.9
2. Ceiling on state budget primary spending 1/49.446.348.7
3. Ceiling on the overall stock of central government debt330330
4. Ceiling on the new guarantees granted by the central government 2/0.00.00.0
5. Ceiling on the accumulation of new external payments arrears on external debt contracted or guaranteed by general government 3/0.00.00.0
6. Ceiling on the stock of domestic arrears (narrow definition)0.00.00.0
7. Ceiling on the stock of domestic arrears of the general government1.50.00.00.00.0
8. Floor on privatization receipts 4/1.64.36.38.410.8
9. Mandatory Exits (employees, in thousands) 4/5/2.04.015.0
10. Transfers to the Mobility Scheme (employees, in thousands) 4/12.525.0
11. Floor on the stock of employees in the mobility scheme that will exit 2/5.011.0

Applies cumulatively from start of the target’s calendar year.

Cumulative from April 1, 2013.

Applied on a continuous basis since program approval.

Cumulative from January 1, 2013.

Quarterly targets have also been set for 2014 (cumulative from April 1, 2013): Q1: 5,000; Q2: 9,000; July: 10,500; August: 12,000; Q3: 14,000; and Q4: 15,000.

Applies cumulatively from start of the target’s calendar year.

Cumulative from April 1, 2013.

Applied on a continuous basis since program approval.

Cumulative from January 1, 2013.

Quarterly targets have also been set for 2014 (cumulative from April 1, 2013): Q1: 5,000; Q2: 9,000; July: 10,500; August: 12,000; Q3: 14,000; and Q4: 15,000.

Table 2.Greece: Structural Benchmarks, June–July, 2013
MeasureStatus
End-June 2013
1. Government to meet quarterly performance indicators for revenue administration (IMF country report No. 13/153, MEFP ¶8 and Annex II).Not expected to be observed (¶18)
2. Government to meet quarterly performance indicators for public financial management (IMF country report No. 13/153, MEFP ¶11 and Annex IV).Expected to be observed (¶23)
3. Adopt a new Tax Procedures Code and simplify income tax legislation (IMF country report No. 13/153, Table 4).Not observed. Prior action (see Table 3)
4. Complete resolution of all undercapitalized or insolvent non-core banks (IMF country report No 13/20, MEFP ¶20).Not observed. Recapitalization completed in July for one bank; treatment to be finalized in July for second bank
July 15, 2013
5. Complete a comprehensive banking sector strategy (IMF country report No. 13/153, MEFP ¶18).Prior action (see Table 3)
6. Conclude sale of New Hellenic Postbank (IMF country report No. 13/153, MEFP ¶19).Prior action (see Table 3)
Table 3.Greece: Prior Actions
MeasureMacro critical relevance
Fiscal measures
1. Government to take steps to ensure full implementation of the fiscal program for 2013–14(¶5).
  • Fiscal sustainability (revenue)
2. Adopt legislation to reform income tax code and government to submit to parliament a tax procedure code (¶6).
  • Fiscal sustainability (revenue)
3. Government to take steps to prevent accumulation of debt in the renewable energy account (¶9).
  • Fiscal sustainability (contingent liabilities)
4. Government to issue all necessary legal acts so as to place at least 4,200 ordinary employees in the mobility scheme by end-July (¶11).
  • Fiscal sustainability (spending) and government efficiency
Fiscal institutional reforms
5. Government to issue ministerial decisions for the transfer to the revenue administration of IAD, and the Directorates for Computer Applications, and for Computer Data Entry and Controls of the GSIS (¶13).
  • Fiscal sustainability (revenue)
6. Amend legislation to close effective August 1, 2013 for new entrants any installment or deferred arrangements for payment liabilities arising from audit assessments other than entry into the fresh start and basic installment schemes (¶15).
  • Fiscal sustainability (revenue)
Financial sector
7. Complete sale of the New Hellenic Postbank and Nea Proton Bank (¶24).
  • Financial stability
8. Authorities to complete a comprehensive banking sector strategy to ensure a banking sector based on four viable core banks (¶25).
  • Financial stability
Privatization
9. Authorities to remove obstacles in the privatization program (¶39).
  • Fiscal sustainability (budget) and economic efficiency
Table 4.Greece: Existing and Proposed Structural Benchmarks
MeasureMacro critical relevance
End-September 2013
1. Ministry of Finance to produce a comprehensive list of nuisance taxes and levies, and eliminate them or transfer them (and the associated spending) to the central government budget (IMF Country Report No. 13/20, MEFP ¶9).
  • Growth/competitiveness (business environment)
2. Adopt legislation on a new property tax regime (¶7). Proposed.
  • Fiscal sustainability (revenue)
3. Banks to update their restructuring plans and submit them for validation by DG-Competition (IMF country report No. 13/20, MEFP 123). Proposed to be re-phased from end-July 2013.
  • Financial stability
4. Government to meet quarterly performance indicators for revenue administration (¶18). Proposed.
  • Fiscal sustainability (revenue)
5. Government to meet quarterly performance indicators for public financial management (¶23). Proposed.
  • Fiscal sustainability (budget)
End-October 2013
6. Approve the new organizational structure of the Revenue Administration, staffing numbers, grading system, and classification, and qualification and appointment processes of the revenue administration (IMF country report No. 13/153, MEFP ¶3).
  • Fiscal sustainability (revenue)
7. Adopt all secondary legislation needed to implement the tax procedures code (¶6). Proposed.
  • Fiscal sustainability (revenue)
End-November 2013
8. Adopt legislation to reform the system of social security contributions to: (i) broaden the contribution base; (ii) simplify the contribution schedule across the various funds; and (iii) reduce contribution rates by 3.9 percentage points. The reforms will be fully phased in by January 1, 2016 and will be revenue neutral and preserve the actuarial balance of the various funds (IMF country report No. 13/20, MEFP ¶10).
  • Growth/competitiveness (business environment)
End-December 2013
9. Government to meet quarterly performance indicators for revenue administration (IMF country report No. 13/153 MEFP ¶8 and Annex II).
  • Fiscal sustainability (revenue)
10. Government to meet quarterly performance indicators for public financial management (IMF country report No. 13/153, MEFP ¶11 and Annex IV).
  • Fiscal sustainability (budget)
11. Bank of Greece to complete a follow-up stress test for banks based on end-June 2013 data, using a methodology designed in consultation with the EC, ECB, and the IMF, and to update banks’ capital needs on this basis (IMF country report No. 13/20, MEFP ¶23).
  • Financial sustainability
12. Ministry of Finance to complete a targeted audit of general government accounts payable, to verify whether any arrears remain, and to review compliance with the conditions set for clearing arrears (IMF Country Report No. 13/20, MEFP ¶39).
  • Fiscal sustainability (debt)
Table 5.Key Performance Indicators on Tax Administration
Indicator2013 Target 1/
End-Jun.End-Sep.End-Dec.
Debt collection
Collection of tax debts as of the end of the previous year114015581,900
Collection of new debts in the current year (percent of new debt in the year)14.0%19.0%24.5%
Tax audits and collection of large tax payers
Number of risk-based full scope audits in the year 2/176386596
Number of risk based temporary audits in the year 3/260470680
Of which: field audits
Collection full scope audits in the year (percent of assessed tax and penalties)65.0%70.0%75.0%
Collection temporary audits in the year (percent of assessed tax and penalties)45.0%50.0%55.0%
Audits and collection of high wealth individuals
Number of completed risk-based audits in the year 4/280550910
Collection of assessed audits in the year (percent of assessed tax and penalties)40.0%55.0%65.0%
Internal control and human resource integrity
MoF audit of assets of managers of local tax offices 5/5080110
MoF audit of assets of auditors 5/5090130
Source: Ministry of Finance; and IMF staff.

Cumulative for the calendar year.

The amount of tax and penalty assessed will be no less than €430 million in September.

The amount of tax and penalty assessed will be no less than €215 million in September.

The amount of tax and penalty assessed will be no less than €115million in September.

Until end-July, the audit is performed by the Internal Affairs Directorate of the MoF, and subsequently by the Internal Affairs Directorate under the GSPR.

Source: Ministry of Finance; and IMF staff.

Cumulative for the calendar year.

The amount of tax and penalty assessed will be no less than €430 million in September.

The amount of tax and penalty assessed will be no less than €215 million in September.

The amount of tax and penalty assessed will be no less than €115million in September.

Until end-July, the audit is performed by the Internal Affairs Directorate of the MoF, and subsequently by the Internal Affairs Directorate under the GSPR.

Table 6.Key Performance Indicators on Public Financial Management Reforms
Indicator2013 Target
End-Jun.End-Sep.End-Dec.
a. Percent of institutional units (State and general government entities) reporting on the E-portal of GAO total budget allocations (including any revisions), pending outstanding commitments, unpaid commitments, and arrears data (for both ordinary and investment) at the end of each month, based on data from their commitment registers, is above the target.
2013 entity coverage 1/80%94%97%
b. Discrepancy between the total arrears to third parties of non-state general government entities reported under the E-Portal of GAO using data from commitment registers and the total arrears reported through monthly surveys, i.e. the sum across all entities of the absolute value of (arrears monthly survey less arrears E-portal) divided by total arrears
2013 entity coverage 1/10%2%1%
c. Percentage of institutional units (State and general government entities) reporting on the E-portal of GAO all the prescribed items with financial information of the circular on commitment registers at the end of each month, based on data from their commitment registers, is above the target.
2013 entity coverage 1/65%78%93%
Source: Ministry of Finance; and IMF staff.

Includes new entities in the end-Septemeber 2012 ELSTAT register with spending above €1 million.

Source: Ministry of Finance; and IMF staff.

Includes new entities in the end-Septemeber 2012 ELSTAT register with spending above €1 million.

Appendix III: Technical Memorandum of Understanding

July 17, 2013

1. This Technical Memorandum of Understanding (TMU) sets out the understandings regarding the definitions of the indicators subject to quantitative targets (performance criteria and indicative targets), specified in the tables annexed to the Memorandum of Economic and Financial Policies. It also describes the methods to be used in assessing the program performance and the information requirements to ensure adequate monitoring of the targets. We will provide the European Commission, ECB and the International Monetary Fund with the necessary information for program monitoring.

2. For program purposes, all foreign currency-related assets, liabilities, and flows will be evaluated at “program exchange rates” as defined below, with the exception of the items affecting government fiscal balances, which will be measured at current exchange rates. The program exchange rates are those that prevailed on January 31, 2012. In particular, the exchange rates for the purposes of the program are set: €1 = 1.3176 U.S. dollar, €1 = 100.63 Japanese yen, and €1.1772= 1 SDR.

General Government

3. Definition: For the purposes of the program, the general government includes:

  • The central government. This includes:
    • The entities covered under the State Budget as defined in Chapter 2 of the Law 2362/1995 as being modified by Law 3871/2010 regarding “Public Accounting, Auditing of Government Expenditures and Other Regulations,” and other entities belonging to the budgetary central government.
    • Other entities or extra-budgetary funds (EBFs) not part of the State budget, but which are, under European System of Accounts (ESA95) rules (“ESA95 Manual on Government Deficit and Debt”), classified under central government. The following state enterprises and organizations included by the National Statistical Service (ELSTAT) under the definition of central government (ATTIKO METRO, OSY, ELGA, HELLENIC DEFENCE SYSTEMS S.A., OSE, TRAINOSE, ELECTROMECHANICA KYMI LTD, OPEKEPE (excluding the account ELEGEP that is included in the State Budget by ELSTAT, KEELPNO, EOT, GAIAOSE, ERGOSE, INFORMATION SOCIETY IN GREECE, Unit for the Organization and Management of Development Projects S.A., and the Green Fund (ETERPS).
    • Local government comprising municipalities and prefectures including their basic and special budgets, including all agencies and institutions attached thereto, which are classified as local governments according to ESA 95.
    • Social security sector (pension funds, employment funds, health fun (EOPYY), and hospitals) comprising all funds that are established as social security funds in the registry of ELSTAT.
    • Other extra budgetary entities included by ELSTAT under general government, which are not yet counted under central government.
    • This definition of general (central) government also includes any new funds, or other special budgetary and extra budgetary programs that may be created during the program period to carry out operations of a fiscal nature. The government will inform IMF, European Commission and ECB staff of the creation of any such new funds, programs, or entities immediately. In particular, GAO will indicate the classification of the Institution for Growth as soon as there is a formal decision on this matter by ELSTAT.
    • Supporting material: The Ministry of Finance (MoF) will provide to the European Commission, ECB and IMF detailed information on monthly revenues and expenditures, domestic and foreign debt redemptions, new domestic and foreign debt issuance, change in the domestic and foreign cash balances of the central government at the central bank of Greece, all other sources of financing including capital transactions, and arrears of the general government. The Ministry of Finance, in collaboration with the Ministry of Interior, will provide monthly data on revenues and expenditures for local governments, as collected in the Ministry databank. The Minister of Finance, in collaboration with the Ministry of Labor and Ministry of Health, will provide monthly data on revenues and expenditures in main social security funds (including IKA, OGA, OAEE, OAED) and the central healthcare fund (EOPYY). The Bank of Greece will provide detailed monthly data on assets and liabilities of local authorities, social security funds, the Green Fund (and other extra-budgetary funds), and state enterprises included in the definition of general government in line with monetary survey data. Data will be provided within four weeks after the closing of each month.

Quantitative and Continuous Performance Criteria, Indicative Targets, and Continuous Performance Criteria: Definitions and Reporting Standards

A. Floor on the Modified General Government Primary Cash Balance (Performance Criterion)

4. Definition: The modified general government primary cash balance (MGGPCB) is defined as the modified general government cash balance (MGGCB) minus interest payments by the state budget. The MGGCB is defined as the sum of the cash balances of the ordinary state budget, the cash balance of the public investment budget, the change in net financial assets of local government, the change in net financial assets of social security, the change in net financial assets of the Green Fund, the change in net financial assets of reclassified public enterprises (RPEs). Privatization receipts, as defined below, and the proceeds from the sale of land and buildings will be excluded from cash receipts. Net lending operations by the state budget will be recorded as cash expenditures.

  • The cash balance of the ordinary state budget. The cash balance of the ordinary state budget will be measured from above the line, based on: (i) gross ordinary budget revenues (recurrent revenue plus non-recurrent revenue, minus tax refunds (excluding any payments relating to tax refund claims made before end-September 2012); minus (ii) ordinary budget expenditures as published monthly on the official website of the General Accounting Office of the Ministry of Finance, and in line with the corresponding line items established in the ordinary state budget. Ordinary budget expenditures will exclude amortization payments, but include: salaries and pensions; grants to social security funds, medical care and social protection; operational and other expenditure; earmarked spending; returned resources; payments in exchange of claims of insurance fund for the personnel working in the Public Electricity Company; the contingency reserve; disbursement fee to EFSF; interest payments; transfers for the settlement of past debt, payments for military equipment procurement on a cash basis;, capital transfers to social security funds or other entities by bonds; and called guarantees where the state or central government assumes payments on behalf of entities outside of the general government.
  • The cash balance of the public investment budget. The cash balance of the public investment budget will be measured from above the line, based on investment budget revenues minus investment budget expenditures of the investment state budget as published monthly on the official website of the General Accounting Office of the Ministry of Finance, and in line with the corresponding line items established in the investment state budget.
  • The change in net financial assets of local governments is defined on a transactions basis, as the change in the total of financial assets minus financial liabilities of local authorities adjusted for valuation changes by the Bank of Greece.
    • Financial assets include (but are not limited to) deposits of local governments in the Bank of Greece and deposits of local governments in domestic credit institutions. Deposits will be measured at face value excluding accrued interest in line with recording for monetary survey data.
    • Financial liabilities include (but are not limited to) short- and long-term loans from domestic credit institutions to local governments, measured at face value, consistent with recording for monetary survey data.
  • The change in net financial assets of social security funds is defined on a transactions basis, as the change in the total of financial assets minus financial liabilities of social security funds, adjusted for valuation changes by the Bank of Greece.
    • Financial assets include
      • Deposits of social security funds in the Bank of Greece and deposits of social security funds in the domestic credit institutions and deposits held either directly or indirectly through the IKA mutual fund. Deposits are measured at face value excluding accrued interest, consistent with reporting requirements for monetary survey data.
      • Holdings of shares quoted on the Athens Stock Exchange held by social security funds either directly or indirectly through the IKA mutual fund.
      • Direct or indirect holdings of Mutual Fund units issued by Greek management companies (other than the IKA mutual fund).
      • Holdings of central government bonds, including short and long-term securities issued domestically, long-term securities issued abroad operated from Bank of Greece accounts, and indirect holdings through the IKA mutual fund. Holdings will be measured at nominal value.
      • Holdings of bonds issued abroad and other foreign assets.
    • Financial liabilities include the short and long term loans from domestic credit institutions to the social security funds, measured consistently with monetary survey data.
  • The change in net financial assets of the Green Fund is defined on a transactions basis, as the change in the total of financial assets minus financial liabilities of the Green Fund, adjusted for valuation changes by the Bank of Greece.
    • Financial assets include
      • Deposits of the Green Fund in the Bank of Greece and in domestic credit institutions. Deposits will be measured at face value excluding accrued interest in line with recording for monetary survey data.
      • Holdings of shares, held by the Green Fund, quoted on the Athens stock exchange.
      • Holdings of Mutual Fund units issued by Greek management companies.
      • Holdings of central government bonds.
      • Holdings of other bonds issued abroad.
    • Financial liabilities include the short and long term loans from the domestic credit institutions to the Green Fund, measured consistently with monetary survey data, or other lending from the Bank of Greece.
  • The change in net financial assets of reclassified public enterprises (RPEs) is defined on a transactions basis, as the change in the total of financial assets minus financial liabilities of RPEs, adjusted for valuation, minus the amount of guarantees called from entities which are consolidated within the general government. RPEs will include the following organizations: ELGA, KEELPNO, OPEKEPE (excluding the account ELEGEP), EOT, ATTIKO METRO, HELLENIC DEFENCE SYSTEMS S.A., ERT, TRAINOSE, ERGOSE, GAIAOSE, OSY, ELECTROMECHANICA KYMI LTD, INFORMATION SOCIETY IN GREECE, MANAGEMENT ORGANISATION UNIT, TAIPED (HRADF) and OSE.
    • Financial assets include
      • Deposits of RPEs in the Bank of Greece and deposits of RPEs in the credit institutions (domestic and foreign). Deposits will be measured at face value excluding accrued interest.
      • Holdings of shares, held by RPEs quoted on the Athens Stock Exchange.
      • Holdings of Mutual Fund units issued by Greek management companies.
      • Holdings of central government bonds.
      • Holdings of other bonds issued abroad.
    • Financial liabilities include the short and long term loans from the domestic credit institutions to RPEs, measured consistently with monetary survey data. They also include short and long term loans from the foreign banking system, as well as loans from the EIB or other official lenders, as measured by the difference between new loans granted to these entities (as approved by the GAO in line with the Fiscal Responsibility Act) and amortization of these loans through called guarantees of the government or amortization of these loans made by actual payments by the companies themselves, upon monitoring and information provided by the General Accounting Office (D25).
  • The MGGPCB will also exclude all transfers related to the Eurogroup decisions of February 21, 2012 and November 26, 2012 in regards to income of euro area national central banks, including the BoG, stemming from their investment portfolio holdings of Greek government bonds.
  • Receipts from privatization are excluded from cash general government revenue receipts. However, for the entire program period where this is applicable, sales of those gaming licenses, telecom licenses, sales of aircrafts, and extension of the airport concession that were established in the context of the May 2010 SBA program or the 2011 budget (Second Review) discussions will be recorded as cash revenue receipts and taken into account for the MGGPCB criterion, irrespective of whether the realized proceeds accrue to the privatization agency or not.
  • The primary expenditure of the central government excludes payments related to bank support that are part of the program’s financial sector strategy. Transactions that may be excluded from the balance include loans to financial institutions and investments in equity of financial institutions (requited recapitalization); unrequited recapitalization; purchases of troubled assets, and operations related to the HFSF. Any financial operation by central government to support banks, including the issuance of guarantees or provision of liquidity, will be immediately reported to IMF, European Commission, and ECB staff.
  • The primary revenue of the central government will exclude any cash payments from loss-making banks beyond those which would accrue from the ELA guarantee fee structure existing on November 30, 2012 (25 basis points).
  • Capital transfers to social security funds or other entities by bonds shall exclude bond issuance for settlement of end-2009 health related arrears, and the settlement related to the judiciary liabilities.

5. Supporting material.

  • Data on cash balances of the State ordinary and investment budgets will be provided to the European Commission, ECB and IMF by the General Accounting Office in the Ministry of Finance within three weeks after the end of each month. Data will include detailed information on revenue and expenditure items, in line with monthly reports published on the official website of the Ministry of Finance. The monthly data will indicate which portion of tax refund payments relate to claims that were made before end-September 2012. Data will also include data on capital transfers to social security funds or other entities in bonds and called guarantees.
  • Data on the change in net financial assets of local authorities and social security funds, extra-budgetary funds including AKAGE, and reclassified public enterprises including the Green Fund will be provided to the IMF, European Commission and ECB by the GAO in cooperation with the Statistics Department of the Bank of Greece within four weeks after the end of each month. With respect to reclassified public enterprises, GAO will also provide on a monthly basis the change in foreign liabilities to correct for the fact that the below the line data of the BOG only refers to changes in domestic liabilities.

B. Ceiling of State Budget Primary Spending (Performance Criterion)

6. Definition. The state budget primary spending consists of state budget spending (spending of the ordinary state budget plus spending of the public investment budget) minus interest expenditures paid by the state budget, minus any arrears payments made. Ordinary state budget spending includes called guarantees to entities inside the general government (as opposed to the definition of the modified general government primary cash balance criterion above that excludes this spending item). Primary expenditure of the central government that is monitored for the Performance Criterion excludes any cash payments related to bank support in line with the definition above in paragraph 5 bullet 3. However, any financial operation by central or general government to support banks, including the issuance of guarantees or provision of liquidity, will be immediately reported to European Commission, ECB and IMF staff.

7. Supporting material. The General Accounting Office of the Ministry of Finance will provide monthly expenditure data of the ordinary and investment state budget, as defined above.

C. Ceiling on the Stock of Domestic Arrears (narrow definition) (Performance Criterion)

8. Definition. For the purpose of the program, domestic arrears (narrow definition) are defined as: (i) unpaid invoices of line ministries and hospitals that are 90 days past their due date; plus (ii) tax refunds for which a refund document (“AFEK”) has been issued and cleared but have not been repaid to the taxpayer. In case no due date is specified on the supplier contract, an unpaid commitment is considered to be in arrears 90 days after the initiation of the invoice. The stock of arrears excludes hospital arrears to pharmaceutical companies which were incurred by end-2009 (€113 million as of November 30, 2012). Beginning July 1, 2013, the definition will include the change in the stock of tax refund claims made on or after July 1 (cumulative from July 1) that have not been paid or rejected within 90 days; and beginning January 1, 2014, it will include the entire stock of tax refund claims that have not been paid or rejected within 90 days. In both cases refund claims that are under legal dispute will be excluded.

9. Supporting material. Monthly data on arrears of line ministries and public hospitals will be provided by the Ministry of Finance within four weeks after the end of each month. The Ministry of Finance will publish this information on its website. The expenditure arrears data will be based on survey data, until data from commitment registers are assessed by the IMF, European Commission, and ECB staff to provide comprehensive and reliable information. These reports will also include data on accounts payable overdue by 0–30, 31–60, and 61–90 days for the central government (line ministries and Decentralized Prefectures) based on the commitment registers. Tax refund arrears data will be based on information provided by General Secretariat for Information Systems and General Secretariat for Tax and Customs. The Ministry of Finance will also provide a monthly table on tax refund arrears as defined above (with AFEK issued) as well as on full tax refund accounts payable that include any refund claims for which AFEK has not been issued (and showing those that have not been assessed after 90 days).

D. Ceiling on the Stock of Domestic Arrears of the General Government (Indicative Target)

10. Definition. For the purpose of the program, domestic arrears of the general government are defined as: (i) unpaid invoices of general government entities that are 90 days past their due date; plus (ii) tax refunds for which a refund document “AFEK” has been issued and cleared but have not been repaid to the taxpayer. In case no due date is specified on the supplier contract, an unpaid commitment is considered to be in arrears 90 days after the initiation of the invoice. The stock of all general government arrears excludes: (i) the arrears accumulated by the Civil Servants’ Welfare Fund; and (ii) hospital arrears to pharmaceutical companies which were incurred by end-2009 (€113 million as of November 30, 2012). Beginning July 1, 2013, the definition will include any new tax refund claims made on or after July 1 that have not been paid or rejected within 90 days; and beginning January 1, 2014, it will include all tax refund claims that have not been assessed within 90 days. In both cases refund claims that are under legal dispute will be excluded.

11. Supporting material. The Ministry of Finance will provide consistent data on monthly expenditure and tax refund arrears of the general government, as defined above within four weeks after the end of each month, and publish this information on the Ministry of Finance website. The expenditure arrears data will be based on survey data, until data from commitment registers are assessed by the IMF, European Commission, and ECB staff to provide comprehensive and reliable information. These reports will also include data on accounts payable overdue by 0–30, 31–60, and 61–90 days for the central government (line ministries and Decentralized Prefectures), based on the commitment registers. Tax refund arrears data will be based on information provided by General Secretariat for Information Systems and General Secretariat for Tax and Customs.

E. Ceiling on the Overall Stock of Central Government Debt (Performance Criterion)

12. Definition. The overall stock of central government debt will refer to ESA95 central government debt, which includes the state debt, debts of extra budgetary funds and public enterprises that are consolidated into the central government, and other ESA 95 adjustments. Holdings of intra-government debt will be netted out. It will be defined for the purposes of the program as total outstanding gross debt liabilities. It will include, but not be limited to, liabilities in the form of securities and loans. It will exclude accounts payable. Debt will be measured at nominal value. The program exchange rates will apply to all non euro-denominated debt. Inflation indexation will apply to inflation indexed debt, using the relevant index as specified in the debt instrument. For the purposes of the program, the ceiling on the stock of central government debt will exclude debt arising from payments for bank restructuring, when carried out under the program’s banking sector restructuring strategy (this does not cover the debt related to the Financial Stability Fund). This includes loans to financial institutions and investments in equity of financial institutions (requited recapitalization); unrequited recapitalization; and purchase of troubled assets. However, any financial operation by the central government to support banks, including the issuance of guarantees or provision of liquidity, with the exception of Hellenic Republic intermediation in repos between foreign and domestic financial institutions will be immediately reported to IMF, European Commission and ECB staff.

13. Adjusters. The ceiling on the overall stock of ESA95 central government debt will be adjusted upward (downward) by the amount of any upward (downward) revision to the stock of end-December 2012 ESA95 central government debt of €311.4 billion.

14. Supporting material. Data on the total stock of central government debt will be provided to the European Commission, ECB and IMF staff by the General Accounting Office consistent with the ESA95 definition no later than 30 days after the end of each month.

F. Ceiling on New Central Government Guarantees (Performance Criterion)

15. Definition. The ceiling on the new central government guarantees shall include new guarantees granted by the state, as well as new guarantees granted by any other entity that is classified under ESA95 under central government, but exclude guarantees to entities whose debt is covered under the ceiling on the stock of central government debt as defined in paragraph 15. The ceiling shall exclude: (i) guarantees to support banks; (ii) guarantees related to EIB financed loans; (iii) guarantees granted by ETEAN (up to a total amount of €50 million provided these are fully backed by an equivalent amount of bank deposits); and (iv) guarantees granted under a risk sharing instrument of the EU structural funds (see COM (2011) 655 final) that do not create contingent liabilities for the Greek State. New guarantees are guarantees extended during the current fiscal year, but for those for which the maturity is being extended beyond the initial contractual provisions, only 50 percent of the full value will be counted. Modification of existing guarantees (without changing the maturity, amount of guarantees, and beneficiaries of the loan) will not be treated as new guarantees.

16. Supporting material. All new central government guarantees will be reported in detail, identifying amounts and beneficiaries. The General Accounting Office will provide the data on a monthly basis within three weeks after the end of each month. Non-state entities classified under the central government shall report the new guarantees they extended to the General Accounting Office on a monthly basis within three weeks after the end of each month.

G. Non-Accumulation of External Debt Payment Arrears by the General Government (Continuous Performance Criterion)

17. Definition. For the purposes of the program, an external debt payment arrear will be defined as a payment on debt to non-residents contracted or guaranteed by the general government, which has not been made within seven days after falling due. For purposes of this program, the term “falling due” means the date in which external debt payments are due according to the relevant contractual agreement, including any contractual grace periods. The performance criterion will apply on a continuous basis throughout the program period.

18. Supporting material. The stock of external arrears of the general government will be provided by the General Accounting Office with a lag of not more than seven days.

H. Floor on Privatization Proceeds (Indicative Target and Performance Criterion)

19. Definition. Privatization proceeds will be defined as the cash receipts from the asset sales carried out by the privatization agency (HRADF), cash receipts from direct government sales, and cash receipts from the sale of any bank participations through the HFSF, the HRADF, or from the government directly. These will include, but not be limited to, the sale of equity of listed or non-listed companies and banks, shareholdings in public infrastructure, shareholdings in SPVs, leasehold in commercial real estate and publicly held land, sale-lease back operations, securitization of asset-related cash streams, or other assets incorporated in the authorities’ privatization program, as well as sale of rights and concessions (including securitization of the proceeds of concessions). Proceeds will be valued in Euros and will be measured as the inflows of cash received by the HRADF and deposited in the Segregated Account at the Bank of Greece within 10 days after the settlement of the transaction.

20. Supporting material. Monthly information on the cash receipts from asset sales into the segregated account will be made available by the GAO, in collaboration with the HRADF, within 30 days after the end of each month.

I. ESA “Program” Deficit and Overall Monitoring and Reporting Requirements

21. ESA program deficit. For the purposes of the program, the ESA deficit (EDP B.9) will have the following adjustments (i) the sale of non-financial assets such as land, buildings, and other concessions or licenses will be excluded, unless these have been agreed in the context of the program; (ii) costs related to banking support as defined in MGGPCB above will be excluded; (iii) all payments relating to tax refund claims made before September 2012 will be excluded; (iv) the accrual revenue from the PPC levy of a given year will include cash receipts within the year plus amounts pertaining to the given year received through March of the following year; (v) all transfers related to the Eurogroup decisions of February 21, 2012 and November 26, 2012 in regard to income of euro zone national central banks will be excluded, including the BoG, stemming from their investment portfolio holdings of Greek government bonds (schedule B provides the latest estimates) and (vi) any called guarantees to entities outside the general government related to liquidated public enterprises above what is already expected in the fiscal program for the current fiscal year.

Schedule A: Indicative Amounts to be Transferred to the Greek Government by Eurosystem National Central Banks(Billions of euros, accrual terms)
201220132014201520162017201820192020Total 12-20
ANFA349.0636.0518.0500.0557.0464.0367.0306.0253.03,950.0
SMP2,098.01,941.01,503.01,134.0898.0729.0580.0422.09,305.0
Source: Greek authorities, ECB, IMF staff estimates.
Source: Greek authorities, ECB, IMF staff estimates.

22. ESA primary balance. For the purpose of the program, the ESA primary balance is defined as general government ESA95 balance (EDP B.9) minus ESA 95 general government consolidated interest payable (EDP D.41).

23. Overall monitoring and reporting requirements. Performance under the program will be monitored from data supplied to the EC, ECB, and IMF by ELSTAT, the Ministry of Finance, the General Accounting Office, and Bank of Greece. The authorities will transmit to the IMF, EC, and ECB staff any data revisions in a timely manner.

J. Floor on Mandatory Exits (Indicative target)

24. Definition: Employees counted as mandatory exits to the private sector will originate from those that: (i) are employed by the general government (ESA95 definition) on a permanent employment contract or on a contract of indefinite duration; and (ii) have no entitlement to early retirement within the next 3 years. Mandatory exit means that the employee leaves the public sector on an involuntary basis, but includes exits from the mobility scheme to the private sector. Mandatory exits are not entitled to severance pay or any other form of compensation (if not provided for under current legislation). The count of mandatory exits will exclude those employees that leave the public sector because the entity they belong to is being privatized under the HRADF privatization program or that leave as part of a restructuring ahead of such privatization. Further, employees that are separated from the public sector for outsourcing will not qualify to be replaced under the 1:1 re-hiring rule. Mandatory exits cannot be rehired into the public sector except via a merit-based selection procedure by ASEP, open to external candidates.

K. Floor on Entrants for Future Exit in the Mobility Scheme (Indicative Target)

25. Definition: Employees counted toward this target have no entitlement to early retirement within the next three years and eight months, qualify for the definition of entrants to the mobility scheme (section x above), which will stay in the scheme until they exit from the public sector after a maximum of eight months. After April 1, 2014, if all previous exit targets have been observed, the floor on the minimum staff will be adjusted downward by any additional exits above the cumulative end-March 2014 target of 5,000 exits from other eligible sources.

Annual Overall Employment Ceilings for the General Government (Revised) 1/(Number of persons)
20122013201420152016
General government712,494676,421649,878628,295608,928
Ordinary staff628,972608,871588,662569,990553,342
Other staff55,97940,52934,83832,56230,514
Chapter A entities24,91424,39223,74923,11422,443
Chapter A fixed term contracts2,6292,6292,6292,6292,629
Memorandum items:
ESPA and self-financed other staff15,34315,34315,34315,34315,343
Total general government727,837691,764665,221643,638624,271
Source: MAREG.

Revised for small update in Dec 2012 (379 staff) and to exclude ESPA and self-financed staff.

Note 1. The number of employees in Chapter A entities will be adjusted for any privatizations.Note 2. The number of employees in Chapter A entities will be adjusted for the inclusion of employees of municipal private law legal entities. These employees are already in the wage bill but not yet counted in the Census Data Base.Note 3. Some small private law legal entities are being verified whether they belong in the general government. If so and their employees are already in the wage bill, the above ceilings will be adjusted accordingly.Note 4. The above ceilings are based on GAO projections and reflect the measures of the MTFS 2013-2016 as well as other assumptions that may be updated in cooperation with the EC/ECB/IMF (e.g. for revised ESPA numbers; finalization of hiring ceilings for 2013/14, etc.)
Source: MAREG.

Revised for small update in Dec 2012 (379 staff) and to exclude ESPA and self-financed staff.

Note 1. The number of employees in Chapter A entities will be adjusted for any privatizations.Note 2. The number of employees in Chapter A entities will be adjusted for the inclusion of employees of municipal private law legal entities. These employees are already in the wage bill but not yet counted in the Census Data Base.Note 3. Some small private law legal entities are being verified whether they belong in the general government. If so and their employees are already in the wage bill, the above ceilings will be adjusted accordingly.Note 4. The above ceilings are based on GAO projections and reflect the measures of the MTFS 2013-2016 as well as other assumptions that may be updated in cooperation with the EC/ECB/IMF (e.g. for revised ESPA numbers; finalization of hiring ceilings for 2013/14, etc.)
Mobility and Exit Scheme(Cumulative numbers of persons)
Staffing PlansInto Mobility SchemeExits From Government
Total Personnel

Covered
Actual To

Date
Total Personnel

Covered
Actual To

Date
Total Personnel

Covered
Actual To

Date
2013
March205,20500
April211,21100
May221,22100
June 1/361,36102,2
July
August
September400,40012,122,2
October
November
December650,65025,254,4
2014
Q15,5
Q29,9
July10,10
August12,12
Q314,14
Q415,15
Source: MAREG.

Actual to date for exits from government a preliminary estimate.

Source: MAREG.

Actual to date for exits from government a preliminary estimate.

L. Floor on Entrants to the Mobility Scheme (Indicative Target)

26. Definition: Employees counted as transferred to the mobility scheme will originate from those that are employed by the general government (ESA95 definition) on a permanent employment contract or on a contract of indefinite duration. Entrance into the labor mobility scheme is defined when the employee’s payment is reduced to 75 percent of the remuneration in the case of “availability,” or to one-third of the remuneration in the case of “disciplinary suspension.” It does not include employees that belong to entities that are in the process of being privatized under the HRADF privatization program or that are part of a restructuring ahead of such privatization.

27. Supporting material. The Ministry of Administrative Reform and E-Governance (MAREG) will report on a monthly basis (15 days after the closing of each month) for the mobility scheme on entrants (number, entity they previously belonged to, reason for entry, number of entrants which will exit) and departures (number, reasons for departure, new entity transferred to or exit), and the stock of employees currently in the scheme (grouped by the months of their entrance). Further, MAREG will report monthly (15 days after the closing of the month) on exits, the number, the general government entity they came from, the reason for the exit, if any. MAREG will report on a monthly basis (15 days after the closing of the month) the stock of general government employees defined as in the Census Data Base.

M. Actions to Achieve a Semi-Autonomous Revenue Administration

28. Issue secondary legislation and other supporting documentation to achieve a semi-autonomous revenue administration (defined as the entire remit of the General Secretariat of Public Revenue), including the following steps:

  • Issue Ministerial Decisions as required under Law [4152]/2013 to transfer to the revenue administration the following units:
    • Ministry of Finance internal affairs department, including its staff and available resources.
    • The competences, staff and available resources of the following organic units of GSIS, pertaining to the exercise of tax and customs administration: i) The Directorate for Computer Applications (Directorate 30), with the exception of the Sections for Budget and Public Expenditure, Payroll and Pensions; and ii) The Directorate for Computer Data Entry and Control (Directorate 32).
  • Issue a report to identify all the tax and customs administrative functions, personnel, and budget allocations necessary to exert the competences specified in case β’ par. 2 and cases α’ and δ’ of par. 5, article 30 of L. 3296/2004, including: (i) preventive checks and temporary tax audits, especially for withholding and imposed taxes, focusing on Value Added Tax (VAT); (ii) checks of transit, imports and exports, trading, supply and distribution of products subject to Special Consumption Tax (Excise Duty); (iii) checks in customs warehouses; (iv) checks the goods under special duty-suspension procedures and implementation of customs legislation in general; (v) checks in means of transportation, shops, warehouses, etc; and (vi) Confiscation of books, documents, goods, means of transportation and other evidence.
  • Create a five member advisory Council comprised of high level experts to be appointed by the Minister of Finance (two of which will be selected among persons with significant international work experience in revenue administration). The SGPR will be an ex-officio member of the board. The advisory board will report to the Minister of Finance, give advice on major matters of revenue administration strategy including human resource issues, monitor performance of the revenue administration against plans and targets, support the revenue administration in managing external stakeholders, and provide assurance that the SGPR is exercising powers appropriately. The Board will have no role in taxpayer specific issues, and will not have access to any specific taxpayer information. Issue a ministerial decision to determine the qualifications, duration of appointment and compensation for the board members and will specify the rules for dealing with conflict of interest, reporting to the Minister, and administrative support for the board. The Board members term will be three years.
  • Establish a new Strategic Planning and Financial Control Directorate in the revenue administration that manages its budget (while maintaining the role of the GDFS as overall budget coordinator and financial controller for the Ministry of Finance’s aggregate budget appropriation) and has the following functions: (i) coordinates the preparation of the revenue administration’s budget; (ii) follows up its implementation; and (iii) proposes reallocations of non-wage recurrent spending in line the organic budget law; (iv) supports the SGPR in project management and monitors progress with reform and KPI implementation.
  • The institutional reform working group (IRWG) chaired by the SGPR, issues a report shared with the Minister and Troika that analyzes and maps the constraints to the operational and administrative autonomy of the SGPR and proposes immediate solutions. Though not limited to the following matters the IRWG examination incorporates any limits to autonomy within:
    • Revenue laws (income tax, VAT, property tax, customs and excise and other taxes administered by the SGPR).
    • Other general laws related to human resources and financial management within the civil service.
    • Powers delegated to the SGPR.

The IRWG will also determine whether additional changes to law are required to authorize SGPR competence for tax administration beyond singular decisions affecting taxpayers.

N. Monitoring of Tax and SSC Installment Schemes

29. Definitions – The framework for monitoring tax and SSC installments under the “fresh start” and “basic” schemes has two sections to monitor participation, one focused on values and a second focused on the number of debtors.

  • Values-Based Indicators:
    • Stocks: (i) the outstanding stock of debt (including principal and surcharges) accumulated before end-2012 (ii) the amount of this debt (including principal and surcharges) that is currently in the Fresh Start scheme, (iii) the amount of this debt (including principal and surcharges) current in the Fresh Start scheme that has also been legally “verified”
    • Flows: (i) the amount of debt (including principal and surcharges) that has entered into the scheme during that month (ii) the increase in the amount of debt (including principal and surcharges) that has been legally “verified” during the month; (iii) the total amount actually paid thus far under the scheme and, of this, the amount that refers to upfront full payment (including principal and surcharges paid). iv) the amount that has become delinquent during the month.
  • Number of Debtor-based Indicators
    • Stocks: (i) the current number of debtors with outstanding debt accumulated before end-2012 (ii) the total number of applications for participation in the scheme thus far (iii) the total number of applications which have been legally “verified”.
    • Flows: (i) the total number of applications submitted for participation in the scheme during that month, (ii) the number of applications that have been legally verified during that month, (iii) the number of debtors that made an upfront full payment, the number of debtors that made their installment payment and the number of debtors that are newly delinquent as of that month. (iv) the number of debtors that have made their last installment payment

30. Supporting material. There will be a weekly report that includes a subset of the data above and will be received by Tuesday after the week to which it refers. The first such report will be received on July 16 and will refer to the previous week. It will include the following variables i) number of debtors currently in the scheme ii) total debt currently under the scheme iii) amount paid year to date and iv) amount of payment contractually expected in the rest of the year based on amount of debt in the scheme at that time. Then, the SGPR and the MoL will report on a monthly basis (within three weeks of the closing of each month) the full set of indicators defined in the monitoring framework for the “fresh start” and “basic” installment schemes, with the first report coming at end-August. The report by the MoL of the SSC installment schemes will provide individual information for the two largest SSFs (IKA, OAEE)

O. Monitoring of SSC Debt Collection

31. Definitions

  • The monitoring framework for SSC debt collections includes: (i) the stock of debt and collection of SSC debt accumulated by December 31, 2012; (ii) the stock of debt and collection of SSC debt incurred during the current year; and (iii) the number of debt assessments completed by the SSFs.
  • The monitoring framework for debt collection by IKA also includes the number and value of legal collection actions (garnishments, seizure writs issued, immovable property seizure, movable property seizure, mortgage and liens, auctions, and bankruptcies and liquidations).

32. Supporting material. The MoL will report according to the monitoring framework for SSC debt collection and for debt collection by KEAO on a monthly basis (three weeks after the closing of each month). The MoL will provide individual information for the two largest SSFs (IKA, OAEE) starting in late August

P. Monitoring of Structural Benchmarks

33. Benchmark on progress in revenue administration, 2013. Progress in revenue administration in 2013 will be defined as reaching or exceeding the targets set in MEFP Table 1.

Table 1.Greece: Actions on Regulated Professions, 2013–14
ProfessionRestrictions to be EliminatedTimingInstrument
Chartered valuators
  • Adopt secondary legislation to set up certification from the Ministry of Finance
  • July 19, 2013
  • 3 Ministerial decisions
  • Amend L4152/2013 to (i) allow the Ministry of Finance the option to provide certification exams itself; and (ii) to abolish the requirement for applicants to provide academic qualifications on top of certification for registration.
  • September, 2013
  • Amend L4093 (subparagraph C2)
Actuaries
  • Adopt secondary legislation to start examinations by October 2013
  • July 15, 2013
  • Ministerial decision
Electricians (41 professions)Issue secondary legislation on:
  • the notification process of technical profession
  • July 15, 2013
  • 4 Joint Ministerial decisions
  • the fees paid for notification of technical profession
  • July 15, 2013
  • the syllabus and process for obtaining a license
  • September 2013
  • defining the fees paid for obtaining a license
  • October 2013
Technical professions (56 professions)Issue secondary legislation on:
  • conditions of conducting exams by private entities
  • End-November 2013
  • Joint Ministerial Decision
  • replacing of professional experience by seminars organized by approved bodies
  • End-March 2014
  • 6 Presidential Decrees
  • the fees for the seminars replacing professional experience
  • End-March 2014
  • Ministerial Decision
  • syllabus and process for obtaining a license for cooling technicians
  • End-June 2013
  • Joint Ministerial Decision
  • defining the fees paid for obtaining a license for cooling technicians
  • End-July 2013
  • Joint Ministerial Decision
  • syllabus and process for obtaining a license for machine operators
  • End-August 2013
  • Joint Ministerial Decision
  • defining the fees paid for obtaining a license for machine operators
  • End-September 2013
  • Joint Ministerial Decision
Slimming/dietary businessesIssue circular to clarify that no restriction for co-establishment of medical or paramedical professions apply
  • End-July, 2013
  • Circular
Sales of fertilizers, propagation and plant-protecting material (10 professions)
  • Adopt implementing legislation that (i) abolish minimum space requirements and (ii) introduce a 3-month period for administration to issue license, after which professionals are free to operate
  • End-July, 2013
  • 2 Ministerial decisions
  • Adopt legislation that (i) allow sales by individuals with adequate training without the mandatory presence of scientists and (ii) define training standards
  • End-July 2013
  • Presidential decree
Geo-technicians (agronomists, foresters, geologists, ichthyologists)
  • Issue secondary legislation to abolish mandatory issuance of professional IDs (from the Geo-Technical Chamber)
  • End-August 2013
  • Presidential decree
  • Issue implementing regulation to abolish mandatory presence of scientist for specific activities (for example sale of plant-protecting products)
  • End-August 2013
  • Circular
Lawyers
  • Adopt legislation to: (i) ease the re-entry into the legal professions; (ii) repeal age limit to take the Bar examinations; (iii) abolish total bans on commercial communications; (iv) provide for licenses of unlimited duration; (v) remove the reference to “exclusivity” for lawyers for the research of books of mortgage and land registry; (vi) clarify that lawyers’ fees are freely determined through a written agreement between lawyers and clients (in case there is no written agreement for court appearances, reference fees still apply); (vii) eliminate any kind of minimum wages for salaried lawyers working in the private sector; (viii) de-link contributions paid by lawyers from lawyer’s reference amounts for contracts and eliminates those reference amounts; and (ix) set a system of prepaid fixed/contract sums for each procedural act or court appearance by a lawyer, which is not linked to a specific ‘reference amount’.
  • End- July, 2013
  • Code of lawyers and Presidential decree
Engineers (including architects and land surveyors)
  • Present a proposal of which activities could be reserved (in exclusivity) to specific professions in consultation with the HCC
  • End-September 2013
  • Proposal
  • Amend unjustified or disproportionate requirements reserving certain activities to specific professions
  • End-December 2013
  • Law and Presidential decree
Firms trading PetroleumWholesale: Adopt legislation to: (i) abolish minimum capital requirement; (ii) mandate written contracts between fuel wholesalers and retailers; (iii) abolish the mandatory storage of at least two categories of fuel products, as a condition to wholesale licensing issued by them; (iv) remove the restriction that a wholesaler’s storage facility needs to be accessible by either the sea, railway network, or through a refinery; and (v) require the installation of inflow-outflow systems throughout the refining and wholesale trading supply chain
  • End-July 2013
  • Laws and 2 MDs
Retail: Adopt legislation to : (i) mandate gasoline stations to state the price and quantity of liquid fuel on all receipts issued; (ii) complete the installation of inflow-outflow systems in the retail market; and (iii) repeal law provisions that provide the Ministry of Development with the possibility to impose a minimum price on the sale of fuels to consumers.
  • End-July 2013
  • Market Policing Code and 1 MD
  • Issue secondary legislation to provide details on insurance scheme (as alternative to minimum capital requirement)
  • End-October 2013
  • MD
Mediators
  • Adopt legislation to allow mediation to be done by non-lawyers
  • End-2013
  • Law
Source: IMF staff estimates.
Source: IMF staff estimates.

34. Definitions:

  • A completed audit is defined as an audit reported as formally finalized in the ELENXIS audit case management system, including signed off by the audit supervisor, and the taxpayer ass essment has been issued, or the audit report states that no underpayment has occurred.
    • Audit reports which are brought to the Tax Dispute Administration Resolution Committee (Article 70A Committee) for settlement after 1 January 2013 are defined as a completed audit when the case is submitted to the committee.
    • High Wealth Individual (HWI) audits carried out on a legal person owned or controlled by the high wealth individual will also be regarded as an HWI audit case if the audit is carried out by the auditor(s) who carry out the audit of the relevant high wealth individual. Furthermore, audit of off-shore companies with the aim of identifying the natural person owing or controlling the offshore company will also be regarded as an HWI audit case. These audits will be reported separately.
  • The assessment amounts from the audit reports submitted to the Article 70A committee are included when reporting on the assessment performance for HWI and Large Taxpayer Unit (LTU) audits. The assessment amount is only included for reporting on the LTU and HWI audit case collection performance when the final assessment is issued following the decision of the committee. These amounts shall be adjusted for any difference between the audit report assessment amount and the final assessment amount.
  • Risk-based audits for large taxpayers are defined as audits selected on a risk basis using the ELENXIS audit management system.
  • Collection on HWI and LTU full scope audits and temporary audits are amounts collected in the year from such LTU and HWI audits completed during the year or previous years.
  • Collection of tax debt does not include debts such as calls on loan guarantees, fines, etc., of non-tax nature for which the tax authority is responsible for collecting on behalf of other public sector entities.
  • In 2013, new tax debt collection includes collection of debt accrued in the month of December, 2012.
  • An audit of assets of a manager, director or auditor includes an audit of all assets, both movable and immovable, including those of his/her spouse. This will include but will not be limited to an examination of all his/her financial accounts for a period of up to 10 years from a current date, all immovable assets compared against information from State registries and of the acquisition of all moveable assets. The purpose of this audit will be to trace and justify the legal acquisition of these assets. These audits will be conducted annually by the Internal Affairs Directorate of the MoF.

35. Supporting material. Monthly information on risk-based full-scope audits and temporary audits of large taxpayers, self employed and high wealth individuals, and VAT nonfilers, collection of assessed taxes and penalties, collection of tax debt, and audits of asset declarations from auditors and managers of local tax offices will be made available by the Minister of Finance no later than two weeks after the end of each month. The monthly submission will also include, for each local tax office and special unit, the number of audits, hours spent on audits, assessed tax specified for income tax and VAT, assessed penalties and surcharges, collected tax amount from assessments, collected penalties and surcharges from assessments, specified for temporary and full scope audits.

36. Benchmark on progress in public financial management, 2013. Progress in implementing public financial management reforms in 2013 will be defined as reaching or exceeding the targets set in MEFP Table 2.

37. Definition. For the purpose of the 2013 target, the reporting institutional units (state and general government entities) include any unit under the general government as defined by ELSTAT as of end-September 2012 whose overall annual spending exceeded €1 million in 2011. Entries under the e-portal include all fields with financial information as prescribed in the GAO circular of Dec 29, 2010 (protocol number 2/91118/0026); this includes inter alia cumulative appropriations released, commitments made, the sum of invoices received, and payments made.

38. Supporting material. Monthly summary information from the e-portal, surveys, and other sources on performance against the above indicators will be published by the General Accounting Office of the Ministry of Finance on their website no later than four weeks after the end of each month. Data submission will include data back to end-2011. Survey information will continue to be provided after December 2013 unless discrepancies between survey and e-portal data are fully eliminated. An authoritative list of entities included under general government as defined by ELSTAT (including annual spending in 2011) will be made available by ELSTAT by August 30, 2013 and will be updated upon updating the ELSTAT register of general government entities.

Q. Regulated Professions

39. As referenced in the MEFP (paragraph 34), the targets on professions are delineated in the table below.

Appendix IV. Letter of Intent to the European Commission and the European Central Bank

Athens, 19 July 2013

Mr. Jeroen Dijsselbloem,

President,

Eurogroup,

Brussels.

Mr. Olli Rehn,

Vice President for Economic and Monetary Affairs and the Euro,

European Commission,

Brussels.

Mr. Mario Draghi,

President,

European Central Bank,

Frankfurt am Main.

Dear Messrs Dijsselbloem, Rehn and Draghi,

In the attached update to the Memorandum of Understanding (formed by the Memorandum of Economic and Financial Policies and the MoU on Specific Economic Policy Conditionality) we describe progress and policy steps towards meeting the objectives of the economic adjustment programme of the Greek government.

Incremental progress under the programme and early signs that the recession has bottomed out, have contributed to a significant improvement in confidence and liquidity. Fiscal consolidation continues, bond yields have declined sharply since the 2012 peak, deposits have increased, economic sentiment is improving, and several Greek companies have recently accessed markets. The external position has improved, supported by steady competitiveness gains, and the pace of job losses is now slowing. We are optimistic that the economy will return to growth next year, although significant downside risks remain.

While data to assess performance against our end-June 2013 quantitative performance criteria are not yet available, we expect to have met all targets. However, the indicative targets on privatisation receipts, transfers to the mobility scheme, and domestic arrears (despite progress) were missed. Some structural benchmarks relevant for this programme review were also missed. Against this setting, we are taking corrective steps and are adopting key reforms, including as prior actions for this review. We also remain committed to a steadfast implementation of the ambitious reform agenda that lies ahead, including by:

  • Restoring fiscal sustainability. As prior actions for this review, we are taking policy steps to ensure that the fiscal targets for 2013–14 will be met, bring down the debt in the Renewable Energy Account, reform the income tax code and the tax procedure code to support our fiscal programme, bring the public administration reforms back on track, and advance the privatisation programme.
  • Strengthening fiscal institutions. As prior actions, we are adopting legislation to allow the transfer of functions and staff to the revenue administration to strengthen its autonomy and improve operations, and to limit the deferral of payments arising from audit assessments only through the basic and fresh start schemes to improve collection efficiency. We are also implementing reforms that will strengthen expenditure control to help prevent accumulation of new arrears, and will mitigate long delays in payment processes to speed up clearance of existing arrears.
  • Safeguarding financial stability. As prior actions, we are completing a comprehensive banking sector strategy centered around the core four pillar banks, and are completing the disposal of the two bridge banks under HFSF control consistent with the above strategy. The recapitalisation of our core banks is now complete, with three of these banks attracting sufficient private capital to allow them to remain under private management control. For the remaining core bank that was fully recapitalised by HFSF, we are committed to place by March 2014 a substantial equity stake with a private strategic international investor.
  • Accelerating growth-enhancing reforms. Our structural reform agenda focuses on strengthening the investment climate and domestic competition, reducing administrative burdens, and improving the functioning of our labour market. To that end, efforts continue to open up restricted professions, remove excessive regulations in the labour market, streamline export procedures, improve the functioning of our judicial system, and advance the privatisation programme.
  • Facilitating employment creation and protecting vulnerable groups. We are introducing employment programmes targeted at unemployed youths, and are strengthening social protection to cushion vulnerable groups from the crisis impact, including by leveraging EU structural funds.

We believe that the policies set forth in the attached memoranda are adequate to achieve the objectives under the programme and stand ready to take any measures that may become appropriate for this purpose as circumstances change. We will consult with the European Commission, the IMF and the ECB before the adoption of any such actions and in advance of revisions to the policies contained in these memoranda.

The implementation of our programme will be monitored through quantitative performance criteria and structural benchmarks as described in the attached programme documents. The quarterly reviews will assess progress in implementing the programme and reach understandings on any additional measures that may be needed to achieve its objectives.

On this basis, we request the disbursement of the amount of EUR 3.0 billion stemming out of the financing arrangements by the EFSF supporting the Second Adjustment Programme for Greece.

This letter is being copied to Ms Lagarde.

________/s________

Antonis Samaras

Prime Minister
_______/s_______

Yannis Stournaras

Minister of Finance
_______/s_______

George Provopoulos

Governor of the Bank of Greece
Appendix V. Memorandum of Understanding on Specific Economic Policy Conditionality

Greece: Memorandum of Understanding on Specific Economic Policy Conditionality

The disbursements of financial assistance to Greece, by the European Financial Stability Facility (EFSF), are subject to quarterly reviews of conditionality for the duration of the arrangement. The release of the tranches is based on observance of quantitative performance criteria and a positive evaluation of progress made with respect to policy criteria in Council Decision 2011/734/EU of 12 July 2011 (as amended; hereinafter the Council Decision), and in the Memorandum of Understanding, composed of the Memorandum of economic and financial policies (MEFP) and of this Memorandum of Understanding on Specific Economic Policy Conditionality.

The annex on data provision is part of the Memorandum and how well it has been respected will be considered in the assessment of compliance.

Greece commits to consult with the European Commission, the ECB and the IMF staff on the adoption of policies falling within the scope of this Memorandum allowing sufficient time for review. The Government publishes a quarterly report in line with Article 4 of the Council Decision.

In line with the conclusions of the euro-area summit of 26 October 2011, the Government will fully cooperate with the Commission, the ECB and the IMF staff teams to strengthen the monitoring of programme implementation, and will provide the staff teams with access to all relevant data and other information in the Greek administration.

The ownership of the programme and all executive responsibilities in the programme implementation remain with the Greek Government.

1 Achieving sound public finances

After overperforming the 2012 fiscal target, fiscal developments up to May have been broadly on track but overruns in the healthcare sector occurred. The 2012 primary balance according to the programme definition reached -1.3% of GDP, slightly better than the target of -1.5% of GDP. The overall balance declined by 3.1 percentage points of GDP and reached 6.3% of GDP in 2012. The underlying fiscal improvement was even larger given that this was accomplished during a deep recession.

After measures had been taken in May to avoid the emergence of a fiscal gap for 2013 and 2014, the mission identified shortfalls that threatened the achievement of the fiscal targets. While the very large and highly front-loaded package of fiscal consolidation measures (totalling over 6.5% of GDP over 2013-14) continues to be largely implemented, shortfalls appeared in a number of the following areas. First, the renewed fiscal gap reflects expenditure overruns in the main health care fund EOPYY in the area of diagnostics and private clinics. Second, the delays in the issuance of property tax bills are expected to result in a revenue shortfall in 2013 because the tax collection will shift in part beyond the 2013 accrual period (i.e., beyond end-March 2014). Third, the yield of some measures, most notably in the area of social security contribution, has been revised downwards, thereby contributing to the gap. Finally, the government has decided to identify other measures alternative to some of the previously agreed measures for 2014, namely special solidarity contribution for self-employed and application of the new wage grid for armed forces.

The authorities are taking measures to close the emerging fiscal gap in 2013-14. In particular, the authorities are undertaking corrective actions to address the healthcare overruns. Thanks to monitoring tools now available, expenditure overruns were detected early in the main health care fund EOPYY diagnostics and private health care clinics, so that corrective measures in the second half of the year can produce significant yields. To address the problems on a permanent basis, a set of structural measures will start being implemented in the autumn aimed at rationing the healthcare provision and preventing misuse of publicly funded services. To ensure that expenditures are brought in line with the budget by the end of 2013, a claw-back mechanism will be applied to diagnostics and private health care clinics. Consequently, invoices in excess of the annual targets will be effectively not reimbursed. Besides the actions in the healthcare sector, a set fiscal measures related to the income tax reform – such as special solidarity surcharge on income from interests and dividends and lower tax deduction allowance for medical expenses – will generate additional moderate revenue. Some measures planned for 2014 would also be frontloaded, such as the luxury tax and an increase in fees for lawsuits. Further, the authorities will produce in autumn a plan for the reduction in social security contribution rates to be introduced in phases over the coming years. The authorities are also committed to take measures in order to achieve the primary programme targets for 2015-16.

Fiscal consolidation

The adjustment path towards the correction of the excessive deficit shall aim to achieve general Government primary surpluses in programme terms of at least EUR 0 million (0.0% of GDP) in 2013, EUR 2,750 million (1.5% of GDP) in 2014, EUR 5,700 million (3.0% of GDP) in 2015 and EUR 8,975 million (4.5% of GDP) in 2016. These targets for the primary surpluses imply an overall Government deficit of 4.1% of GDP in 2013, 3.3% of GDP in 2014, 2.1% of GDP in 2015 and 0.8% of GDP in 2016.

These numbers could be estimated to translate into an improvement in the cyclically-adjusted primary balance to GDP ratio from 4.5% in 2012 to 6.2% in 2013 and an average of about 5½% of GDP in 2014-16 and into a cyclically-adjusted Government deficit to GDP ratio at -½% in 2012, 2.1% in 2013, 1.5% in 2014, 0.5% in 2015 and -0.4% in 2016, reflecting the profile of interest payments.

Proceeds from the privatisation of financial and non-financial assets, transactions related to bank recapitalisation and other bank support measures, as well as all transfers related to the Eurogroup decision of 21 February 2012 in regard to income of euro zone national central banks, including the Bank of Greece (BoG), stemming from their investment portfolio holdings of Greek Government bonds shall not reduce the required fiscal consolidation effort and shall not be counted in the assessment of these targets.

The adjustment path referred to in the previous paragraphs, taking into account the impact of the debt-reducing measures to be implemented in December 2012, would be consistent with a general Government consolidated debt ratio to GDP of around 160% in 2016.

The Government has put in place a number of measures to strengthen the underlying policies with the aim of catching any possible slippages. Specifically, regarding the solidarity contribution for the self-employed, the Government confirmed its commitment in implementing this measure in 2014, especially given the expected recovery of the economy which will mitigate its any negative impact of this measure on Greece’s adjustment process.

Prior to the disbursement the Government will:

  • Bring forward into 2013, according to the program target definition, some of the property tax collected via the public power company (PPC) by temporarily shortening the pay period for PPC of the final instalment to March 2014;
  • Complete the signatures on the Memorandum of Understanding with the Greek merchant fleet which, together with the tonnage tax, will ensure €140 million accrued in annual revenue in 2013-15;
  • Bring forward to August 1, 2013 through legislation the luxury tax on cars, swimming pools, and airplanes;
  • Pass legislation to limit the use of untaxed reserve accounts for capital gains by 2015, so as to raise revenue of at least €50 million in 2014;

Additional Measures:

  • 1. The authorities will introduce a docking fee on leisure boats effective October 1, 2013 (August 2013)
  • 2. The Authorities will carry out a comprehensive review of social security contribution of OAEE with the aim at identifying all the current exemptions and initiatives to enhance the collection rates introducing more effective payment procedures (September 2013).

2 Structural reforms with budgetary relevance

2.1 Privatising to boost efficiency in the economy and reduce public debt

The privatisation of public companies contributes to the reduction of public debt, as well as to the reduction of subsidies, other transfers or state guarantees to state-owned enterprises. It also aims at increasing the efficiency of companies and, by extension, the competitiveness of the economy as a whole, while attracting foreign direct investment. This is why the Greek Authorities have committed to proceed swiftly and efficiently with the Privatisation Plan even if the sale of assets goes beyond the duration of the Economic Adjustment Programme. Within this context, the Government is committed to continue to insulate the privatisation process from political pressures.

The provision of basic public goods and services by privatized industries will be fully safeguarded, in line with the national policy goals and in compliance with the EU Treaty and appropriate secondary legislation rules. The Authorities must proceed swiftly to establish the regulatory framework in those areas which are necessary for the privatisation process (airports, ports, water, horse betting), consistent with EU legislation, taking into account international best practises. Transferring of assets to the HRADF quickly will facilitate the privatisation process and will signal the clear intention of the Authorities to bring the privatisation process forward. The Authorities should take immediate actions to address the state-aid related issues pending, which is a pre-condition for proceeding with the privatisation of these assets.

Privatisation of real estate assets is of outmost importance in the privatisation process.

Prior to disbursement the Authorities:

  • Adopt legislative acts permitting the payment of arrears owed to EYDAP and EYATH directly from the arrears clearance program;
  • General Government entities validate outstanding water and drainage bills to EYDAP and EYATH and send to GAO official documentation confirming the level of outstanding debt.
  • In order to facilitate the privatisation of ODIE adopt in parliament the law for clarifying responsibilities between Jockey Club and the New Concessionaire.

Actions to be taken by the Government include the following:

  • Rapid adoption of necessary primary and secondary legislation and implementation decisions, in consistency with the required actions for implementing the Privatisation Plan. All Government actions pending in these three areas are listed in Annex 9.1.
  • General Government entities relating to public investment projects validate all other outstanding debt to EYDAP and EYATH and submit to GAO an agreed claim with creditors to GAO. (August 2013)
  • Pay the outstanding water, drainage debts to EYDAP and EYATH (August 2013).
  • Pay all the outstanding other debts EYDAP and EYATH (September 2013).
  • Adopts irreversible decisions by August 2013 on the restructuring, involving substantial downsizing, ahead of privatisation or on the resolution of ELVO, HDS, and LARCO, both in compliance with State aid rules, with a view to implementing these decisions by December-2013.
  • High priority should be given in the preparation of real estate assets (title clearance, licencing etc.) given the time lags involved in such a process and the need to secure a sufficient number of assets in the privatisation pipeline. Hence, the Authorities should proceed with the transfer of full and direct ownership of 1000 commercially viable real estate assets to the HRADF (by end-2013), at a rate of 250 real assets transferred per quarter in 2013.
  • In order to enhance the asset management capacity of the Hellenic Republic, the Authorities:
    • Will propose a plan to prepare the remaining (not in the privatisation pipeline) real estate assets owned by the Hellenic Republic, and managed by ETAD, for securitisation or direct privatisation. Currently some 80,000 public properties are under the management of ETAD. Additional properties are under management by different ministries. The status of these properties in many instances is unknown, or unverifiable. This implies waste and limits possibilities for developing public property and deriving income from it. This plan should contain analysis of the status of properties and the steps needed to quickly prepare properties for exploitation by the State. (November 2013).
    • Contextually and based on this plan, ETAD will by November 2013 present proposals to improve the governance, effectiveness and ability to carry out these tasks by ETAD, to be completed in stages according to the plan.
    • Will bring all remaining (non-operational) properties (e.g., those under the Ministry of Defence, Agriculture) under the management of ETAD, by December 2013
    • The Authorities will prepare a first progress report by June 2013 on the numbers of properties by Ministry/Public Entity, the nature, state and of these properties and providing detailed information, where applicable, to its current use; a second and third progress report with the number already transferred to ETAD by August 2013 and October 2013; and a final report by January 2014.
  • The Authorities will ensure that there will be no transfer or withholding of any real estate assets, without prior consultation and agreement with the HRADF and the EC/IMF/ECB, to entities other than the HRADF, including to municipalities and the recently established pension fund SPV or other dedicated legal entities, or until such time as the assets necessary to supply the privatisation plan have been secured (Continuous).
  • The HRADF, drawing in particular from a report to be prepared by the ESM, will assess the possibility of raising additional revenues, or bringing forward future receipts, from the private sector, with a focus on international investors, by means of securitisation of assets, through the exploitation of assets not yet included in its privatisation plan and specified in paragraph 2.1.9 (Continuous)
  • The HRADF will continue to be tasked with selling assets as quickly and effectively as possible. In particular, there will be no further political review once an asset has been transferred to the HRADF (Continuous)
  • The HRADF will publish quarterly reports on its steps to facilitate privatisations, financial accounts, including a profit and loss statement, a cash flow statement, and a balance sheet, no later than 60 days after the conclusion of every calendar quarter (Quarterly).
  • Securing privatisation receipts which, cumulatively since January 2011, should be at least EUR 1.6 billion by end-2012, EUR 3.1 billion by end-2013, EUR 6.5 billion by end-2014, EUR 7.7 billion by end-2015, EUR 11.1 billion by end-2016.

2.2 Tax policy reform

Prior to the disbursement the Government will:

  • adopt legislation to introduce a new Income Tax Code that will simplify the existing law, increase its transparency, and remove ambiguities, whilst allowing easier administration, encouraging tax compliance, and ensuring more robust revenue through the cycle. The new income tax code will reduce filing requirements for pay-as-you-earn taxpayers and those who receive investment income, consolidate cross-border merger and reorganization provisions, and introduce anti-avoidance provisions to combat international tax avoidance;
  • introduce legislation to Parliament for a new Tax Procedures Code (TPC) to enter into force by January 1st 2014. The new TPC consolidates and streamlines provisions existing in current legislation, and fills legislative gaps in enforced collection methods, requirement for mandatory data provision to the tax authorities, interest and penalties, and internal review procedures. This code should reduce the costs of administration and compliance and incorporate procedural reforms in all major administrative areas that are necessary to support modern tax administration (e.g., tax filing, audit and penalties, enforcement powers and debt collection;
  • open the E9 filing period for submitting updated information on land and real estate assets.

Other Actions

  • The Authorities submit proposals for further simplification and improvement of the Code of Tax Recording of Transactions (formerly code of books and records) and corresponding amendments required in the commercial and accounting legislation in order to come into effect by 1/1/2014 (October 2013);
  • Amendments needed to the ITC in covering investment tax incentives will be completed by (September 2013).
  • To ensure that the TPC will be fully implemented by January 2014, the Government will adopt all secondary legislation necessary to support implementation; and legislate the necessary changes to modernize the Code of Public Revenue Collection to ensure full compatibility with the TPC reform (October 2013).
  • The Government will pass legislation on the property tax regime to take effect in 2014.
  • The Government continues work on a standard procedure for revision of legal values of real estate to better align them with market prices that will be in place for the purposes of capital taxation for the fiscal year 2016, and issues a status report on the work and a detailed timetable (September 2013).
  • The Authorities will develop the tax policy capacity in the policy unit of the Ministry of Finance with appropriate and adequate legal and economic expertise for the development, economic impact, and revenue assessment of new tax policy initiatives (September 2013).
  • The Government will publish every December the schedule for the following year for filing and payment of all taxes and levies for the state Government and social budgets (December 2013).
  • The Authorities will abstain from extending deadlines for filing and payment of all taxes and levies for the state Government and social budgets (continuous).
  • Extend through 2016 (tax reporting for 2017) the special solidarity surcharge, with 1-4 percent rate (November 2013).

2.3 Revenue administration reforms

A strong and focused reform programme undertaken in the coming months must continue to address all the weaknesses in the existing system and support the fight against tax evasion and corruption. The Government will continue to reform the current institutional framework in line with that in many other EU and OECD economies to ensure more autonomy for the tax administration department, especially for day-to-day operations, while leaving policy matters in the hands of the Government. The reform must be undertaken in a gradual way after assessing carefully the impact of each step undertaken:

  • The re-organisation of tax offices must continue to take place to increase the efficiency of audits and tax collection.
  • Methods must continue to be improved, using risk assessment techniques, to increase focused audits on high yield targets, and on substantial issues in order to detect tax evasion. This requires the creation of a new single tax procedure code.
  • Collection of taxes should continue to be reinforced. The debt collection function should be consolidated into a small number of offices and conducted by a full time work force of specialized collection staff, and where possible integrated with the collection of debt related to social security contribution and local Government.
  • The management will be improved, under the leadership of a Secretary General for Public Revenue (SGPR) with increased powers. Managers and auditors should be subject to performance targets and regular assessment. The SGPR must have the capacity to replace non-performing managers and auditors. Besides, managers must rotate regularly.
  • The structure of the Secretariat General for Public Revenue has to be reorganized to include other functions related to the implementation of the tax and customs legislation and which are not at the moment integrated in the Revenue Administration, including audit, controls, information systems and internal audits.
  • The headquarters must include units dedicated to budgetary preparation and follow-up, strategic planning and project management.
  • Fighting tax evasion and corruption is a priority in this effort.
  • The current administrative review process has to be replaced by a cost effective compulsory pre-settlement administrative procedure, in order to significantly reduce the number of unnecessary tax litigation, so as to lighten the burden of courts and ensure a timely settlement of the cases.

To deal with all these challenges, full use should be made of technical assistance provided in this sector. This implies a structured process involving technical assistance advice working on an on-going basis with the administration on new legislation and implementing decision, with enough time to guarantee proper consultation and with a constant effort to keep rules simple and in line with current administrative capacity.

With the aim of strengthening the Revenue Administration, as part of the reform programme, the Government, prior to the disbursement:

  • Issue the ministerial decision for the transfer to the revenue administration of the Ministry of Finance internal affairs department;
  • Issues the ministerial decision for the transfer to the revenue administration of all functions, staff, and budget allocations of the Directorates for Computer Applications (excluding the sections for Budget and Public Expenditure, Payroll, and Pensions) and for Computer Data Entry and Control of the General Secretariat for Information Systems (GSIS).

2.3.1 Organization

  • To increase the autonomy of the revenue administration, the Authorities:
    • Identify the functions and staff of the Corp for the Prosecution of Economic Crimes (SDOE) that will be transferred to the revenue administration (July 2013);
    • Transfer the revenue-related functions, personnel, and budget allocation of the Corp for the Prosecution of Economic Crimes (SDOE) under the revenue administration is completed (October 2013);
    • Establish a new Strategic Planning and Financial Control Directorate, which will manage the budget of the revenue administration starting with the preparation of the revenue administration’s 2014 budget, support the Secretary General of the Revenue administration (SGPR) in project management, and monitor progress with reform and KPI implementation (July 2013);
    • Staff the Strategic Planning and Financial Control Directorate to make it fully functional (September 2013);
    • Issue a report proposing solutions to lift the remaining constraints to the delegation of powers to the SGPR (August 2013);
    • Adopt amending legislation to lift the remaining constraints to the delegation of powers to the SGPR (September 2013);
    • Select a 5-member Advisory Council to the SGPR, comprising 3 domestic experts and 2 high-level external experts with significant international experience in carrying out revenue administration reforms and establishes a regular at least bimonthly schedule of meetings for the first year. (July 2013);
    • Prepare a 2014-15 business plan for the revenue administration (October 2013)
  • Continue to centralise and merge local tax offices leaving 120 open at the time when payment through banks will operational all over the territory (September 2013).
  • Establish an internal review unit by:
    • Appointing a project manager and provide initial staffing of a new Internal Review Unit (July 2013);
    • Making the Internal Review Unit operational (August 2013)

2.3.2 Fight against tax evasion, money laundering and corruption

  • The SGPR takes all appropriate measures to form a strong audit force:
    • Completes the certification of 2000 tax auditors (July 2013);
    • Completes the external hiring of the additional 186 auditors (July 2013);
    • Ensures that the basic audit training of the of 2000 newly certified tax auditors and of the all the 200 new external hires is completed (June 2014);
    • Provides a plan, including training, for the integration of new staff in the revenue administration; (July 2013);
    • Appoints a team of full-time trainers (September 2013);
    • Ensures an adequate number of supervisors in the High Wealth Individual (HWI) and Large Tax Payers Unit (LTU) (Continuous);
    • Ensures that all staff are assessed for their performance on a bi-annual basis under the new assessment system (Continuous).
  • The SGPR takes all appropriate measures to secure effective audits by issuing:
    • audit reports on more than 15 cases based on indirect audit methods in the high-wealth individuals (HWI) unit (September 2013);
    • orders for more than 250 capital remittance cases in the high-wealth individuals (HWI) unit (July 2013);
  • a decision to enhance targeted auditing based on risk assessment techniques (July 2013).
  • The SGPR reinforces the provisions for protecting whistle-blowers who report corruption in the modern code of conduct concerning conflicts of interests and declaration of interests and a system for protecting whistle-blowers who report corruption (September 2013);.
  • The Authorities:
    • Revise legislation to enable prosecution for major tax evasion regardless of the tax payer paying the tax assessment in cases of settlement (September 2013);
    • Amend the legislation to close effective August 1, 2013 for new entrants any instalment or deferred arrangements for payment liabilities arising from audit assessments other than entry into the fresh start and basic instalment schemes (July 2013);
  • To reinforce transparency in financial transactions, the Authorities:
    • adopt legislation for the creation of an indirect bank account register that will provide authorized revenue administration personnel access to information about existence of bank accounts held by taxpayers, and about the current balance on the account (July 2013);
    • complete the development of the IT system necessary for the indirect bank account register, which will be implemented on a pilot basis. (August 2013);
    • complete a full implementation of the indirect bank account register (September 2013);
    • ensure that Ministries and State Owned Enterprises (SOEs) which have a fiscal relationship with taxpayers and beneficiaries utilize their tax identification number for financial transactions with them (July 2013);
    • make compulsory the use of tax identification numbers for all official transaction with the whole public administration (December 2013);
    • introduce a system to consolidate and link all of the different identification numbers now used across various Government agencies (June 2014).

2.3.3 Revenue and debt collection

  • To reinforce the tax and related debt collection capacity, the SGPR:
    • presents a plan for providing a compulsory professional training programme for debt management staff (July 2013);
    • issues a circular specifying the criteria to determine fresh debt; (July 2013);
    • assigns 30 staff of the Large Debtor Unit to the collection of fresh debt; (July 2013);
    • completes the consolidation of debt collection in the largest tax offices (DOYs) by (September 2013).
  • To secure a swift tax collection, the Authorities:
    • introduce the possibility of direct debiting of bank accounts for taxpayers in arrears (September 2013);
    • present a plan to replace payments in cash and cheque in tax offices with bank transfers (July 2013);
    • amend the legislation (Law 2648/1998) to close for new entrants any instalment or deferred payment arrangements for payment liabilities arising from audit assessments other than entry into the fresh start and basic instalment schemes (July 2013);
  • To preserve appropriate incentives towards a sound payment culture, the Authorities:
    • commit not to adopt new tax amnesties, or extend existing amnesties for the collection of taxes and social contributions during the years covered by the economic adjustment programme (Continuous);
    • abstain from extending the deadlines for the filing and payment of taxes; (Continuous);
    • publish every December the schedule for the following year for filing and payment of all taxes and levies for the state government and social budgets) (December 2013 and Continuous);
  • The Authorities repeal the application of the Code for Collection of Public Revenue for collection of social security contributions, and enact a new legal framework for public revenue collections in line with international best practice (February 2014);
  • The Authorities, to ensure full application of Law 4051/2012, issue the joint Ministry of finance-Ministry of Justice decision required according to Article 203 of the Administrative Procedures Code, amended by Law 4051/2012 (July 2013);
  • The Authorities publish monthly indicators to monitor performance of the fresh start and basic instalment schemes (continuous, starting July 2013).

2.3.4 Social Security Contribution

  • The special working group - created to examine the arrears stock across the four largest Social Security Funds (SSFs), to assess collectability, and identify collectible arrears for transferring them to the new single collection entity - will develop a framework for coordination and integration of tax and social security contributions (SSC) arrears collection (December 2013).
  • To strengthen the collection of social security contributions and related debt, the Authorities:
    • Adopt legislation to establish the organization of a new joint collection centre for social security contributions debt (KEAO) (July 2013);
    • Assign and recruit 600 staff for the single collection centre:
      • 200 by August 2013;
      • 400 additional by December 2013;
    • Create a single social security contributions debt database, (August 2013),
    • Transfer 4.2 billion of social security contributions collectable debt to the single collection centre (August 2013),
    • Establish a procedure to quarantine uncollectable debt (August 2013),
  • Develop an electronic application system for social security contributions instalment schemes:
    • to be introduced for IKA and OAEE by (July 2013);
    • And in other funds by (December 2013).

2.3.5 Management of the State Revenue Service

  • The SGPR replaces managers who do not meet performance targets (Continuous);
  • The Authorities update at least monthly the website used for publication of summary statistics on key performance indicators, the number of tax evasion cases sent to the FIU and to prosecution by the tax administration (Continuous)
  • The SGPR makes full application of the paragraph 21 of 55 of l. 4002/2011 to rotate the managers mentioned in the law:
    • For those managers in place for more than three years: in (September 2013);
    • Continuously after September 2013;

2.3.6 Tools

  • The new ELENXIS system will be operational in major tax offices and audit centres by (December 2013). The National Centre for Public Administration and Local Government (EKDAA) will provide the necessary support.
  • The new TAXIS system is operational in all tax offices (October 2013).

2.4 Public Financial Management Reforms

Developing a solid public financial management framework is key in controlling expenditures and thus being able to achieve fiscal targets. The Government is committed to enacting targeted reforms for strengthening the framework both within the General Accounting Office (GAO) and line ministries.

2.4.1 Monitoring and reporting

In this area, the Authorities undertake to implement important reforms which include monitoring expenditure across different public entities, as well as in local Governments and state-owned enterprises, and putting in place triggers for ensuring that the budget is executed in an orderly manner and expenditure is kept under control.

The Government will:

  • Identify other areas of operational expenditure where real time monitoring mechanisms could be introduced or strengthened (Continuous)
  • Enhance the monitoring system for the budget execution of Extra Budgetary Funds with expenditure below 20 million, to be effective from 1st January 2014 (December 2013).
  • Ensure consistent monitoring of targets in the SSFs sector requiring pension and employment funds, EOPYY, and hospitals monthly reports according to templates agreed with GAO. The provision of data to GAO will take place within three weeks of the completion of the month, and it will start by October 2013.

2.4.2 Payment flows and clearance of arrears

One important area where significant progress must be made is in preventing the build-up of arrears, both on the tax and expenditure sides. Greece has transposed the Late Payment Directive aiming at restoring normal lending to the economy. Implementation of the Directive requires payment of invoices within 30 days in principle, or 60 days in exceptional cases. In Greece the transposition and implementation of the Directive is particularly challenging, as existing payment processes are extremely slow, encumbered by excessive layers of control and hampered by lack of automation. However a joint Ministerial Decision was issued instructing fiscal audit offices to process all payment requests within 20 days, and set deadlines for each stage of the payment process. Within the scope of the on-going comprehensive re-engineering of financial management work processes, called the ERP project, it is necessary to streamline payment processes in the short-medium term to meet the 30 day target. An interim solution should have the objective of removing the main bottlenecks in the current process and improving efficiency. This must include changes in work practice and legislation based on the action plan prepared by the Authorities following the provision of technical assistance. The authorities initiated the streamlining of the current process with the adoption of L. 4151/2013 that shifted the responsibility for payment execution from tax offices (DOYs) to the fiscal audit offices.

The Government will:

  • submit to the Council of State a Presidential Decree outlining the new administrative processes needed for fiscal audit offices to execute payments (September 2013);
  • implement necessary changes to its IT and administrative processes to permit payment orders and accompanying documentation from fiscal audit offices to be authorized and accepted electronically (October 2013);
  • put in place statistical reports to enable follow-up on progress (October 2013)
  • prepare a medium-term action plan for meeting the requirement of the Late Payment Directive (October 2013) that will include
    • an analysis of the IT systems to ensure that such a move is feasible by the January 2014 deadline;
    • a review the legal framework on payment processes with a view to simplify it considerably;
    • standardized thresholds above which different levels of approval are required across all line ministries.
  • produce a joint note by the Hellenic Court of Auditors (HCA) and GAO on the role and scope for streamlining of the HCA’s ex ante audits in financial control following the review of the effectiveness of the HCA’s ex-post audit pilot scheme expected to be completed in November with the assistance of the Dutch Court of Audit (December 2013);
  • To address problems still lying in the extra-budgetary funds and in the social security sector, especially in relation to the transfer of competencies from SSFs to EOPPY, despite the progress in the setting-up of the commitment/co-payment registries, the Government will:
    • ensure that commitment registers are in operation in 94% per cent of general government entities based on 2013 entity coverage (September 2013).
    • monitor the effectiveness of the commitment registers by conducting regular targeted inspections in the public entities covered by the system (Continuous).
    • enforce the obligation of accounting officers to report commitments by enacting sanctions to entities not submitting needed data, though disciplinary action for accounting officers, and by strengthening the role of GAO in providing support and guidance to Accounting Officers (Continuous)
    • take actions as soon as significant deviations from yearly targets of EOPYY become evident (Continuous).
  • To address other problems still lying in the central government sector the Government will:
    • complete procedures for identifying fully qualified senior financial managers for the Accounting Office positions in all line ministries (September2013).
    • Appoints the Accounting Officers based on these new procedures. (September 2013).
    • The MoF/GAO and MAREG, in consultation with the Accounting Officers of the Ministries, ensure adequate staffing for the financial functions in line ministries and develop training material and a training scheme for GDFS staff (continuous).
  • To clear expenditure arrears and tax refunds, the conditions for a government unit to meet to allow funds for arrears clearance to be disbursed will include, for expenditure arrears: (i) establishment by the unit of a fully functioning commitment register and (ii) reporting of at least three months of consistent data on commitments, payments, and arrears (2 months for EOPYY); and, for both expenditure arrears and tax refunds: (iii) verification of claims. Entities which meet these conditions can clear their arrears even if their parent agency does not meet the conditions. Arrears should not delay the execution of the pharmaceutical spending clawback or any related measure. The Government will:
    • Ensure the administrative capacity to make the clearance of arrears effective by staffing the necessary units (September 2013)
    • Prioritize repayments by Local Governments and their legal entities to public companies for provisions of public services (namely water supplies) also through direct transfers from the special budget allocation for clearance of arrears recorded in the State budget (September 2013).
    • Identify and implement actions by September 2013 to ensure clearance of all outstanding lump-sum pensions (accounted for as arrears until Dec-2011) by December 2013.
  • Once the clearance of all verified arrears is achieved, the Government ensures that no new arrears are accumulated (Continuous).

2.5 Safeguards for the delivery of fiscal commitments

Enhancing credibility is essential to the success of the Adjustment Programme for Greece. One way is through the early implementation of the EU’s Fiscal Compact. Greece has already signed and ratified the intergovernmental Treaty on Stability, Coordination and Governance in the EMU. A key part of the Treaty is the fiscal compact that introduces national budgetary rules as well as enhanced enforcement mechanisms at European level. Within a comprehensive approach, key steps to safeguard the delivery of fiscal commitments are necessary in the areas of: Budget preparation and implementation, monitoring and reporting, corrective and sanctioning mechanisms, transparency, accountability and oversight, debt servicing.

2.5.1 Enhancing national budgetary rules in line with the EU’s Fiscal Compact

  • The Government will adopt the necessary legislation to transpose the Fiscal Compact provisions with a view to introducing a structural budget balance rule with an automatic correction mechanism (October 2013)

2.5.2 Budget preparation and implementation

The Government will:

  • Submit to the Parliament the 2014 medium-term fiscal strategy (MTFS) (September 2013).
  • Adopt the organic budget law by October 2013 to introduce:
    • The MTFS will set fixed expenditure ceilings for line ministries and the health care sector and every year a ceiling for an additional year will be added while the already set ceilings (i.e. for the first two years of the rolling three-year period covered by the ceilings) would remain as previously fixed;
    • Establish binding annual budget balance targets for local governments;
    • identify performance targets for SOEs;
    • Provisions to freeze ex-ante 10% of discretionary appropriations per budget line as part of the MTFS. The frozen appropriations would be released in the second half of the year conditional upon meeting the fiscal targets. The first application should concern the 2014 budget.
    • A revenue rule for the general government, according to which at least 30% of windfall revenues in excess of the target will be devoted to debt repayment while up to 70% could be used the following year by the Government to support temporary policies aiming to boost growth and social cohesion automatically, conditional to the achievement of the fiscal targets.

2.5.3 Corrective and sanctioning mechanisms

The Government will:

  • Ensure a continuous balance between pension contributions and benefits, by bringing forward to June 2014 the entry in force of the binding mechanism (for auxiliary pensions) already legislated to enter in force as of 2015. (September 2013)
  • Strengthen HRADF’s governance and independence and implement an automatic correction mechanism, should there be any difficulties in the privatisation process or slippages in the targets, by (quarterly):
    • Reviewing the functioning of the privatisation framework law, through specific QPCs to be enforced the moment the privatisation plan derails.
    • Taking, in cooperation with EC/ECB/IMF, appropriate steps, including changes in existing legislation and/or in the composition of the Board, to safeguard and strengthen the independence and the functioning of the HRADF, if targets for the sale of assets to be privatised were missed substantially for two consecutive quarters. In all circumstances, the HRADF remains fully accountable to parliament on an ex-post basis for the integrity of every privatisation sale.
    • Increasing automatically the primary surplus target, should there be a shortfall of privatisation proceeds due to the delay in sales of specific assets compared to programme targets for two consecutive quarters. Any shortfall in privatisation proceeds ceteris paribus increases the financing need and the debt ratio. To mitigate this undesirable outcome, unless other adjustments are agreed with the EC/ECB/IMF, the primary surplus target would be raised with immediate effect by 50 percent of the shortfall in proceeds, and should be achieved by means of current expenditure cuts in the general government. The adjustment within any year would be capped at €1 billion.
  • Enhance the corrective mechanism for local governments (LGs) through a top down approach for the preparation of 2014 realistic budgets for LGs. This approach foresees subsequent steps:
    • an agreement between Ministry of Interior and GAO on the total grants from the State to the LGs consistent with the updated macro-economic projections and with the binding ceilings for 2014-15 within the preparation of the MTFS (July 2013).
    • the issuance of a Joint Ministerial Decision for the preparation of 2014 LGs’ budgets (July 2013) consistent with the level of grants from the State, their own resources and with the guidelines for the assessment of the local government’s budgets;
    • Municipalities prepare budgets for 2014 consistent with the balance budget rule (September 2013)
    • a review process of LG’s budgets by the Observatory of local authorities, in order to ensure consistency with the overall MTFS targets for LGS to be completed before the adoption of the MTFS. (November 2013