IMF Press Release
IMF Executive Board Concludes First Post-Program Monitoring Discussions with Greece
March 12, 2019
On March 6, 2019, the Executive Board of the International Monetary Fund (IMF) concluded the First Post-Program Monitoring Discussions with Greece.
The economic recovery in Greece is accelerating and broadening. Growth is projected to reach 2.4 percent this year (up from an estimated 2.1 percent in 2018) supported by exports, private consumption and investment as sentiment improves. A gradual recovery in private deposits has facilitated a further relaxation of capital flow management measures, though bank lending remains negative. Over the medium term, economic expansion is expected to slow down to just above 1 percent.
Greece’s medium-term debt repayment capacity is adequate, but subject to rising risks amid still significant vulnerabilities. Debt-to-GDP is projected to remain on a downward trajectory in the medium term thanks to continued high primary surpluses agreed with European partners, nominal GDP growth, and debt relief, which provided for a substantial precautionary cash buffer and low debt service on official loans. However, risks (both domestic and external) have intensified, and crises legacies—including high public debt and impaired private balance sheets— and a weak payment discipline continue to pose significant vulnerabilities.
Executive Directors welcomed the commendable progress in implementing reforms which have helped restore stability and growth, reduce unemployment, improve debt sustainability and re‑access markets. Building on Greece’s growth momentum, they encouraged the authorities to address still‑significant vulnerabilities and strengthen the economy’s resilience and inclusion by enhancing labor market flexibility, rebalancing the fiscal policy mix, and strengthening bank balance sheets to support sustainable and more inclusive growth. Directors recognized that Greece’s medium‑term repayment capacity remains adequate, but noted rising downside risks that require further actions to strengthen the economy.
Directors noted that further efforts are needed to lock in competitiveness gains, enhance productivity, and ensure labor market flexibility. They expressed concern about the risks to employment and competitiveness from the combination of the recent reversal of the 2012 collective bargaining agreement reform and the increase in the statutory minimum wage, which was well above productivity growth. Looking ahead, Directors encouraged the authorities to accelerate reforms that could both mitigate these downside risks and help boost productivity and lower non‑wage costs. They recommended further steps to improve the business climate and facilitate higher and more diversified investment, including long‑needed deeper product market reforms aimed at improving product choice, quality, and competition.
Directors emphasized the importance of adopting a more growth‑friendly and socially inclusive fiscal policy mix. They called for a further fiscal rebalancing, while meeting medium‑term fiscal targets agreed with European partners. Directors supported the planned tax cuts in 2020, prioritizing lower direct tax rates while broadening the personal income tax base. They also recommended allocating more fiscal space to public investment and better targeted social spending. To support these objectives, Directors also called for accelerating public financial management reforms and tax compliance efforts and addressing the structural causes of arrears. They also recommended deeper contingency planning for the possible realization of rising fiscal risks.
Directors encouraged the authorities to take a more comprehensive, well‑coordinated approach to strengthening bank balance sheets and reviving growth‑enhancing lending. Noting the high level of non‑performing exposures (NPEs), they encouraged the authorities to bring together key stakeholders and base policy measures on cost‑efficiency assessments of various NPE reduction options, while considering the impact of forthcoming regulatory changes and related fiscal implications. Directors encouraged further strengthening of the legal toolkit to facilitate private‑sector based NPE reduction before considering state support, and to avoid measures that could further erode payment discipline, while improving bank internal governance. Liberalization of capital flow management measures should continue in line with the conditions‑based roadmap.
OMG These Greeks. Always a pain in the …head