IMF Completes Second Review Under Stand-By Arrangement for Greece, Approves €2.5 Billion Disbursement

A very ambitious fiscal adjustment effort is under way. Fiscal institutional and sectoral reforms have been elaborated for a more durable adjustment. Greece’s determination toward a comprehensive modernization of the health sector, beginning with a far-reaching reform of state enterprises and redoubling efforts to improve tax administration, is commended. An acceleration of reforms is essential to restore robust economic growth. Liquidity remains precariously tight. Pressure points are evident in the public sector, and still generally unfavorable investor sentiments suggest that the program is still at crossroads.

Abstract

A very ambitious fiscal adjustment effort is under way. Fiscal institutional and sectoral reforms have been elaborated for a more durable adjustment. Greece’s determination toward a comprehensive modernization of the health sector, beginning with a far-reaching reform of state enterprises and redoubling efforts to improve tax administration, is commended. An acceleration of reforms is essential to restore robust economic growth. Liquidity remains precariously tight. Pressure points are evident in the public sector, and still generally unfavorable investor sentiments suggest that the program is still at crossroads.

The Executive Board of the International Monetary Fund (IMF) today completed the second review of Greece’s economic performance under a program supported by a three-year Stand-By Arrangement (SBA) for Greece. The completion of the review enables the immediate disbursement of an amount equivalent to SDR 2.16 billion (about €2.5 billion), bringing total disbursements under the SBA to SDR 9.13 billion (about €10.58 billion).

The SBA, which was approved on May 9, 2010 (see Press Release No. 10/187), is part of a cooperative package of financing with Euro area member states amounting to €110 billion over three years. It entails exceptional access to IMF resources, amounting to more than 3,200 percent of Greece’s quota, and was approved under the Fund’s fast-track Emergency Financing Mechanism procedures.

Following the Executive Board’s discussion, Mr. Murilo Portugal, Deputy Managing Director and Acting Chair, said:

“The Fund-supported program has continued to perform well, and the Greek authorities are to be commended for their determined implementation of difficult and ambitious macroeconomic policies and structural reforms. Inflation is falling and competitiveness improving. Given pressure points in the public sector and still unfavorable investor sentiment, comprehensive and timely reforms remain essential to secure renewed growth and sustainable public debt dynamics, while protecting vulnerable groups.

“The overall fiscal adjustment to date has been impressive. Arrears are a matter of concern, but continued budget under-execution should allow the end-year fiscal target to be met. The government’s intention to stick to the original program target for 2011 means that the deficit impact of recent fiscal data revisions will be fully offset.

“It is important that fiscal structural reforms be forcefully advanced to ensure a lasting consolidation. Strengthened tax administration and public financial management remain priorities, and comprehensive, time-bound action plans are needed to advance reforms in state enterprises, and in the health and other sectors.

“Acceleration of the broader structural reform agenda is equally important to spur a robust investment-led recovery. Crucial reform areas include second-stage labor market reforms, opening of closed professions, and deregulation of tourism and retail trade.

“Banks have enjoyed some recent success in bolstering their capital, and the authorities have the necessary tools to backstop capital and support system liquidity, if necessary. Their commitment to intensify efforts to reform the state bank sector is welcome.

“An arrangement for Greece under the Extended Fund Facility, which has longer repayment terms than the current Stand-By Arrangement, will be brought forward for consideration by the IMF’s Executive Board once understandings can be reached with the EU and European governments on a parallel extension of the maturity of their loans,” Mr. Portugal added.

Greece: Second Review Under the Stand-By Arrangement: Staff Report; Press Release on the Executive Board Discussion; and Statement by the Executive Director for Greece.
Author: International Monetary Fund