## 1grcea2024001 ## Source details **Canonical URL:** [1grcea2024001](https://www.imf.org/-/media/files/publications/cr/2024/english/1grcea2024001.pdf) ## Other formats - [Markdown version](/-/media/files/publications/cr/2024/english/1grcea2024001.pdf.md) - [Structured JSON version](/-/media/files/publications/cr/2024/english/1grcea2024001.pdf.json) --- ### Macroeconomic outlook and near-term projections - Real GDP growth: 5.6 (2022), 2.3 (2023), 2.1 (2024, proj.); medium-term GDP growth forecast to moderate to about 1¼ percent. - Private consumption will be supported by positive real wage growth. - Investment supported by National Recovery and Resilience Plan (NRRP) and Next Generation EU funds; total investment projected to reach about 17 percent of GDP in the medium term (euro area average about 23 percent). - Headline inflation: projected to reach 2 percent by end-2025; headline CPI (period avg.) 9.3 (2022), 4.2 (2023), 2.8 (2024). - Risks: - Growth risks: more balanced; downside risks include escalation of Russia’s war in Ukraine and the Conflict in Gaza and Israel disrupting trade and raising energy/food prices. - Inflation risks: tilted upward—upside drivers include recent and expected wage and pension increases, weather-related shocks, and geoeconomic fragmentation. - Scenarios: - Upside growth scenario: acceleration of ambitious structural reforms and stronger-than-expected market reactions to the investment grade upgrade. - Downside growth scenario: higher-for-longer euro area inflation and interest rates, renewed energy and food price pressures, extreme climate events disrupting tourism. ### Banking system and financial sector resilience - Asset quality and capital: - NPL ratio for systemically important banks declined below 5 percent; NPL ratio of SIs: 7 percent end-2021 → 5 percent end-2022. - NPL coverage ratio for SIs: 43 percent in 2023Q2. - Common equity tier 1 capital ratio for SIs: 14 percent (2023). - Deferred Tax Credit (DTC) represented 51 percent of prudential capital (EUR 13.4 billion) in 2023Q2; DTC share declined from 59 percent in 2021Q4. - Profitability and liquidity: - Return on equity (RoE): 18 percent (2022), 13 percent (2023Q2). - Liquidity coverage ratio: 210 percent in 2023Q2; net stable funding ratio: 135 percent in 2023Q2; loan-to-deposit ratio: 60 percent in 2023Q2. - TLTROIII repayments: around EUR 30 billion repaid; remaining balance EUR 20 billion as of 2023Q2. - Vulnerabilities and structural issues: - LSIs NPL ratio still exceeds 40 percent; some LSIs have weak capital/profitability. - Shortfall for Greek banks against binding MREL target in 2025 is the largest among euro area countries despite interim issuances (EUR 3 billion). - Policy guidance and supervisory actions: - Strengthen monitoring and management of interest rate, liquidity and funding, and credit exposure risks. - Use temporarily elevated bank profits to build capital buffers and improve capital quality. - Activate a positive neutral countercyclical capital buffer (CCyB) and introduce borrower-based measures (BBMs) for mortgages (caps on LTV and DSTI). - Targeted reviews of banks’ interest-rate and credit-spread assessment and management; bank interest-rate-risk stress tests. - Ensure dividend payouts account fully for key risks to prevent extraordinary payments and assure capital accumulation. - Discuss sustainable long-term solution for high DTCs with authorities and European Institutions while avoiding recourse to public funds. - Intensify corrective supervisory action and/or restructuring for fragile LSIs. ### Fiscal position, debt dynamics, and policy recommendations - General government finances (percent of GDP): - Revenue: 50.5 (2022), 47.4 (2023), 46.9 (2024). - Expenditure: 52.9 (2022), 49.0 (2023), 47.7 (2024). - Overall balance: -2.3 (2022), -1.6 (2023), -0.9 (2024). - Primary balance: 0.1 (2022), 1.1 (2023), 2.1 (2024). - Public debt 1/: 179.5 (2022), 167.4 (2023), 158.0 (2024). - Nominal GDP (billions of euros): 206.6 (2022), 221.6 (2023), 233.9 (2024). - Current account (percent of GDP): -10.7 (2022), -7.1 (2023), -6.4 (2024). - Debt structure and buffers: - Public debt largely euro-denominated, at fixed rates, weighted average maturity 19 years; close to three quarters held by external official creditors. - Cash buffer: €14 billion (noted earlier) and total General Government cash reserves: EUR 33.5 billion (end-December 2023). - Baseline DSA projections (public debt percent of GDP): 179.5 (2022); 167.4 (2023); 158.0 (2024); 151.9 (2025); 148.6 (2026); 145.3 (2027); 142.3 (2028); 139.4 (2029); 137.2 (2030); 135.3 (2031); 133.6 (2032). - Gross financing needs (GFN, percent of GDP): 19.0 (2022); 12.5 (2023); 9.8 (2024); 9.1 (2025); 10.2 (2026); 8.9 (2027); 11.0 (2028); 9.0 (2029); 9.2 (2030); 10.7 (2031); 9.9 (2032). - Policy guidance: - Pursue growth-friendly fiscal consolidation: further tightening in the near term and maintain a primary surplus in the medium term (authorities and staff agree on primary surplus of about 2 percent of GDP). - CAPB tightening by about ¾ percent of potential GDP in 2024; save better-than-expected revenue for debt reduction. - Emphasize public investment, including green investment, and protect critical social spending (healthcare, education). - Advance fiscal structural reforms: address tax evasion, operationalize Greece Register of Real Beneficiaries, promote digital transactions, limit large cash transactions, rationalize tax incentives; implement performance budgeting, spending reviews, accounting reform, strengthen public investment management. - Reconsider poorly targeted cuts in SSCs and solidarity tax that would incur permanent annual fiscal cost of 1 percent of GDP; offset with benefit adjustments and base-broadening measures. - Resist excessive increases in public-sector wages and pensions; stick to pension indexation formula and avoid ad hoc pension increases. ### Debt sustainability and sovereign risk assessment (DSA highlights) - Overall risk of sovereign stress: Moderate. - Medium-term mechanical signal: High → Final assessment: Moderate. - Mitigating factors: favorable debt structure (high share of official holdings at low fixed rates, ultra-long maturity, long grace periods); large cash buffer (€14 billion); proactive debt management via hedging. - Fan chart metrics: - Fanchart width = 106.8; Final Fanchart terminal debt-to-GDP x = 84.7. - Probability of debt non-stabilization (percent): 32.7. - Debt fanchart index (DFI) = 3.7; Risk signal: High. - Average baseline GFN (percent of GDP) = 10.2. - GFN financeability index (GFI) = 9.5; Risk signal: Moderate. - Prob. of missed crisis, 2023-2028, if stress not predicted: 72.7 pct. - Prob. of false alarms, 2023-2028, if stress predicted: 3.4 pct. - Long-term: projected public debt-to-GDP ratio declines eventually, but significant uncertainty remains due to demographic and climate pressures and sustainability of high primary surpluses. ### External sector assessment and current account dynamics - NIIP: improved to -149 percent of GDP in 2022 from -179 percent in 2021; projected to improve further in the medium term. - Current account (CA): -10.7 percent of GDP (2022) → projected -7.1 percent of GDP (2023); staff CA assessment for 2023: CA -7.1; Cycl. Adj. CA -6.9; EBA Norm -3.9; EBA Gap -3.0; Staff Gap -3.0. - Staff assessment: external position in 2023 is weaker than consistent with fundamentals and desirable policies; CA gap ~ -3 percent of GDP. - Trade and services: - Exports (percent of GDP) rose to 49.1 (2022) and projected 44.6 (2024). - Imports (percent of GDP): 58.9 (2022), projected 49.3 (2024). - Services surplus (tourism) expected to widen; tourist arrivals and receipts Jan-Sep 2023: 103 percent and 110 percent of 2019 levels. - REER and competitiveness: - ULC-REER fell by 26 percent during 2012–19; ULC-REER fell another 8.4 percent since 2019 (to 2023Q2). - IMF staff CA gap implies a REER gap of 7 percent (overvaluation) for 2023; EBA REER index regression estimates REER gap 6 percent; EBA level regression estimates 35–40 percent (staff favors EBA CA model assessment over EBA REER regressions). - Policy responses: - Prudent fiscal policy to maintain a primary surplus to reduce public debt-to-GDP and the negative NIIP. - Structural reforms to raise potential growth: strengthen labor force participation (youth and female), reskilling/upskilling, green and digital transition, rationalize regulations, reduce product market rigidities. ### NPLs, distressed debt recovery, and insolvency framework - NPL and distressed debt stock: - Total stock of NPLs: EUR 12.7 billion in H1 2023 (Bank of Greece). - Distressed debt under recovery: EUR 71.1 billion as of 2023Q2 (down from EUR 87.0 billion in 2022Q2). - NPL dynamics: - HAPS and Hercules securitizations helped reduce SIs’ NPLs; HAPS ended October 2022 and was re-introduced until end 2024 with state guarantees up to EUR 2 billion. - Since HAPS ended, NPL reduction stalled in 2023 with limited collateral liquidations, write-offs, and collections; some inflow of new NPLs in 2023Q2 from a large corporate default. - Convergence target: SI NPL ratio toward EU average of 2 percent; LSIs remain above 40 percent NPL ratio. - Profitability and capital quality: - RoE: 18 percent (2022), 13 percent (2023Q2). - DTCs in prudential capital: amount EUR 13.4 billion (51 percent); DTAs up to EUR 2.4 billion included in prudential capital; additional EUR 3.9 billion DTAs held but not included. - Recommendations on distressed debt recovery: - Accelerate debt resolution through out-of-court workouts (OCW) and formal proceedings under the new insolvency code. - Improve judicial efficiency and expand out-of-court approaches to restructure viable businesses and exit non-viable ones. - Monitor credit servicers’ performance; corrective action if underperformance persists. - Continue supervisory oversight of credit servicers; MoF monitors HAPS transactions monthly. ### Over-indebtedness, OCW platform, and insolvency data reporting - OCW and Insolvency Code: - Insolvency Code of 2020 consolidates OCW, early warnings, pre-insolvency rehabilitation, liquidation, and bankruptcy; OCW electronic platform run by General Secretariat collects rich data. - OCW supports restructuring of debts to financial institutions and the state, including long-term rescheduling and haircuts; an algorithm sets conditions for state participation. - Data reporting and suggested enhancements: - Current OCW reports include information on applications, stock and flow, restructuring agreements, and geographic distribution. - Suggested improvements: organize reports by cost, duration, and outcome; add debtor demographics (economic activity, age, gender, marital status, number of children, income, educational level) aggregated and anonymized; expand formal insolvency reporting (personal insolvency, business rehabilitation) with cost, duration, outcome, and repeat applications. - Modernize technological infrastructure for formal insolvency (electronic platform) to improve reporting capacity. - Communication: - Dissemination campaigns should draw from OCW data reports to incentivize use and communicate cost-free, timely, attractive outcomes of restructuring mechanisms. ### Structural reforms and growth-enhancing measures - Objective: lift medium-term growth amid negative demographic outlook (working-age population decline ~0.7 percent annually over past decade; projected to decline about 1 percent annually until 2030). - Key reform areas and measures: - Digitalization: continue digitalizing public administration; invest in 5G, fast broadband, fiber optics, submarine cables; focus on SMEs (SMEs account for over 70 percent of total employment). - Business environment: rationalize regulations, simplify licensing, facilitate firm entry/exit, improve competition, cut corporate tax rates, incentivize R&D and innovation. - Labor market: raise participation, reduce marginal income tax of second earners, expand childcare, scale up lifelong learning for digital and green skills. - Judicial and insolvency reforms: strengthen judicial efficiency, accelerate out-of-court workouts, improve data gathering. - Wage policy: rely on independent expert committee and social dialogues in wage bargaining to raise workers’ income sustainably without undermining competitiveness. - NRRP implementation: - NRRP revised in September 2023; approved EU funding for NRRP in 2021-26 about €31billion (17 percent of GDP), of which 36 percent has been disbursed; revised NRRP requested additional €5.8 billion (2.8 percent of GDP). - Revised NRRP total envelope (in later reporting): EUR 35.95 billion (2018 values), EUR 18.22 billion grants, EUR 17.73 billion loans. - Priorities: green and digital transition, reskilling/upskilling, firm upgrades. ### Climate policy, green transition, and financing needs - Exposure and emissions: - Greece: third-longest coastline in Europe; 90 percent of tourism infrastructure and 80 percent of industrial activities in areas exposed to high climate risks. - GHG emissions per capita: 6.8 (tons of CO2 equivalent). - Fossil fuels account for about 80 percent of Greece’s energy supply. - Financing needs and cost estimates: - Adaptation cost estimated at 1.5 percent of GDP annually over the next 25 years. - Achieving mitigation target requires green investment of over 20 percent of 2021 GDP. - Policy guidance: - Strong implementation of policy framework for renewables: streamline licensing for new investment and better integrate renewables in an upgraded electricity grid. - Consider raising carbon pricing (including excise and feebates) in non-ETS sectors such as transport to incentivize green transition as energy prices normalize. - Strengthen climate adaptation in public financial and investment management, enhance incentives for insurance solutions for climate risk sharing, phase out untargeted energy subsidies, and enhance regulation and supervision of climate-related financial risks leveraging ECB supervisory actions. - Mobilization: - Mobilize private green financing under NRRP: simplify procedures, rationalize spatial planning, strengthen incentives for energy efficiency and innovation. ### Key socio-economic indicators and other statistics - Population (millions): 10.5. - Per capita GDP (€'000): 19.8. - IMF quota (millions of SDRs): 2,428.9. - Literacy rate (percent): 97.9. - Poverty rate (percent): 28.3. - Unemployment rate (percent): 12.4 (2022), 10.6 (2023), 9.2 (2024); youth unemployment: 23.7 percent; female unemployment: 12.1 percent. - CPI inflation (period avg., percent): 9.3 (2022), 4.2 (2023), 2.8 (2024). - FDI (percent of GDP): -2.4 (2022), -2.1 (2023), -2.9 (2024). - External debt (percent of GDP): 270.1 (2022), 259.0 (2023), 250.4 (2024). - REER (percent change): -0.9 (2022). - NRRP memorandum: Approved EU funding for NRRP in 2021-26 about €31billion (17 percent of GDP), of which 36 percent has been disbursed. ### Fund relations, data, technical assistance, and institutional notes - Membership Status: Joined December 27, 1945. - Exchange rate arrangements: euro; participates in EMU; exchange system free of restrictions for current transactions as of March 31, 2023. - IMF quota and holdings: Quota SDR Million 2,428.90; IMF’s Holdings of Currency SDR Million 1,855.86; Reserve Tranche Position SDR Million 575.02. - Latest financial arrangements: EFF (Mar 15, 2012–Jan 15, 2016) Amount Approved SDR million 23,785,30; Amount Drawn SDR million 10,224.50. Stand-by (May 09, 2010–Mar 14, 2012) Amount Approved SDR million 26,432.90; Amount Drawn SDR million 17,541.80. - Technical assistance: multiple FAD/STA missions and deliverables listed (2018–2023), including VAT gap analysis and IT capability development. - Data adequacy: broadly adequate for surveillance; improvements noted since ELSTAT establishment in 2010; SDDS subscriber since November 8, 2002. - Recommended institutional timing: next Article IV consultation to take place on the standard 12–month cycle. *Source: IMF staff report for the 2023 Article IV Consultation (Greece) — excerpts (1grcea2024001).* ### 2.1 percent in 2024. Private consumption will be supported by positive real wage growth while ### GREECE: STAFF REPORT FOR THE 2023 ARTICLE IV CONSULTATION ### Macroeconomic outlook and near-term projections - Real GDP growth: 5.6 (2022), 2.3 (2023), 2.1 (2024, proj.). - Private consumption will be supported by positive real wage growth. - Investment will continue to expand with the implementation of the National Recovery and Resilience Plan supported by Next Generation EU funds. - Headline inflation is forecast to reach 2 percent by end-2025 as pressures on core inflation will dissipate only gradually despite continued normalization of energy and food prices. - Risks to growth are more balanced; risks to inflation are tilted upward. - Upside inflation risks include pressures from recent and expected wage and pension increases and weather-related shocks. - Downside growth risks include a potential escalation of Russia’s war in Ukraine and the Conflict in Gaza and Israel that could disrupt trade and trigger renewed energy and food price pressures and undermine confidence. - Upside growth scenario: acceleration of ambitious structural reforms and stronger-than-expected market reactions to the recent investment grade upgrade. ### Banking system and financial sector resilience - Banking system has remained resilient underpinned by balance sheet strengthening. - Asset quality further improved with the Non-Performing Loan ratio declining below 5 percent in systemically important banks. - Higher net interest margins have contributed to a strong rebound in bank profits and bolstered capital adequacy. - The banking system maintains sizable liquidity buffers despite substantial repayments of ECB’s targeted long-term refinancing operations (TLTRO). - Policy guidance: - Strengthen monitoring and management of risks associated with interest rates, liquidity and funding, and credit exposures. - Use temporarily elevated bank profits to build capital buffers and improve the quality of capital. - Activate a positive neutral countercyclical capital buffer to guard against potential systemic shocks. - Implement borrower-based measures for mortgage loan borrowers—such as caps on loan-to-value and on debt service-to-income ratios—to enhance household resilience and contain banking system vulnerabilities. ### Fiscal position and policy recommendations - General government finances (percent of GDP): - Revenue: 50.5 (2022), 47.4 (2023), 46.9 (2024). - Expenditure: 52.9 (2022), 49.0 (2023), 47.7 (2024). - Overall balance: -2.3 (2022), -1.6 (2023), -0.9 (2024). - Primary balance: 0.1 (2022), 1.1 (2023), 2.1 (2024). - Public debt 1/: 179.5 (2022), 167.4 (2023), 158.0 (2024). - Nominal GDP (billions of euros): 206.6 (2022), 221.6 (2023), 233.9 (2024). - Current account (percent of GDP) 2/: -10.7 (2022), -7.1 (2023), -6.4 (2024). - Policy guidance: - Pursue growth-friendly fiscal consolidation: further tightening in the near term and maintaining a primary surplus in the medium term to strengthen public debt sustainability while limiting additional pressure on inflation. - Emphasize public investment, including green investment, and critical social spending such as healthcare and education to support inclusive and green growth. - Advance fiscal structural reforms, including ongoing efforts to address tax evasion, to enhance fiscal governance and improve the efficiency of fiscal policy. ### Structural reforms and growth-enhancing measures - Comprehensive reforms to address structural supply impediments are needed to lift medium-term growth amid a negative demographic outlook. - Recommended reforms: - Continue digitalizing public administration and tackle barriers to more competition to unlock higher private investment and improve productivity. - Increase labor participation and improve workforce skills to raise labor market dynamism and facilitate digitalization and the green transition. - Strengthen judicial system reforms and out-of-court proceedings to improve business dynamism and productivity, and to reduce bank NPLs and distressed debt recovered by credit servicers. - Expeditious implementation of the National Recovery and Resilience Plan to support the green and digital transition, and reskilling and upskilling the labor force. - Rationalize regulations to improve resource allocation and business dynamism. ### Climate policy and green transition - Greece faces high climate exposure: third-longest coastline in Europe; 90 percent of tourism infrastructure and 80 percent of industrial activities in areas exposed to high climate risks. - GHG emissions per capita (tons of CO2 equivalent): 6.8. - Fossil fuels account for about 80 percent of Greece’s energy supply. - Policy guidance: - Strong implementation of the authorities’ policy framework for renewables, including streamlining the licensing framework for new investment and better integrating renewables in an upgraded electricity grid. - Consider raising the carbon pricing (including excise and feebates) in non-ETS sectors such as transport to further incentivize rapid and efficient green transition as energy price continues to normalize. ### Executive Board assessment — key messages - Greece’s economic outlook has improved notably but significant challenges remain. - Real GDP is expanding beyond its pre-pandemic trend level, driven by strong tourism recovery, strengthening investment catalyzed by NGEU funding and FDI inflows. - Strong growth and high inflation have brought the public debt-to-GDP ratio down below its pre-pandemic level with limited financing risks in the medium term due to the favorable debt structure. - Structural imbalances—low household savings and still low level of investment—and increasing risks from climate change weigh on medium-term growth prospects. - The external position in 2023 is assessed to be weaker than that consistent with medium-term fundamentals and desirable policies (assessment based on preliminary 2023 current account data). ### Selected socio-economic indicators and vulnerabilities - Population (millions): 10.5. - Per capita GDP (€'000): 19.8. - IMF quota (millions of SDRs): 2,428.9. - Literacy rate (percent): 97.9. - Poverty rate (percent): 28.3. - Unemployment rate (percent): 12.4 (2022), 10.6 (2023), 9.2 (2024). - CPI inflation (period avg., percent): 9.3 (2022), 4.2 (2023), 2.8 (2024). - FDI (percent of GDP): -2.4 (2022), -2.1 (2023), -2.9 (2024). - External debt (percent of GDP): 270.1 (2022), 259.0 (2023), 250.4 (2024). - REER (percent change) 3/: -0.9 (2022). - Memorandum: Approved EU funding for Greece’s National Recovery and Resilience Plan (NRRP) in 2021-26 is about €31billion (17 percent of GDP), of which 36 percent has been disbursed. The authorities submitted the revised NRRP in September 2023 with additional funding request of €5.8 billion (2.8 percent of GDP). *Source: IMF staff report for the 2023 Article IV Consultation (Greece).* ### 7. Headline inflation is falling but core inflation is declining more gradually amid the ### 7. Headline inflation is falling but core inflation is declining more gradually amid the tightening labor market. ### Inflation and labor market dynamics - Headline inflation decelerated to 3.3 percent (3- month moving average, y/y) in October mainly due to normalizing energy prices and base effects. - Services inflation remains high, contributing to sticky core inflation at 4.8 percent (3- month moving average, y/y). - Total compensation of employees grew by 5.5 percent (y/y) in the first three quarters of 2023, combined with falling inflation, contributing to higher real wages. - The unit labor cost remained low relative to euro area peers. - The minimum wage was raised by another 9 .4 percent in April, after a 7.5 percent increase in 2022, adding to overall wage pressures. - Employment expanded by 8.6 percent in 2023Q2. - The job vacancy rate reached a decade high. - The unemployment rate declined to 9.6 percent in October, the lowest level in 14 years. - Unemployment remains disproportionately high for specific groups: youth unemployment at 23.7 percent and female unemployment at 12.1 percent. ### Credit, housing, and financial sector - Private sector credit accelerated to 6.3 percent (y/y) at end-2022. - Credit growth moderated in 2023 due to early repayments of corporate loans amid higher interest rates and sizable repayment of pre-GFC mortgage loans, but overall credit demand remains robust, supported by NRRP-related corporate loans and solid new mortgage loans. - Residential house prices have risen by more than 50 percent since the trough in 2017 but remain below pre-GFC levels. - Asset quality improved: NPL ratio declined below 5 percent in 2023Q2 in systemically important banks, supported by continued securitizations and loan sales under the Hercules program. - System-wide tier-1 capital ratio increased to almost 15 percent in 2023Q2—still below the euro area average. - Deferred Tax Credit (DTC) represented 51 percent of prudential capital, implying gradual improvement in capital quality. - Banking system maintained sizeable liquidity buffers despite substantial repayments of targeted longer-term refinancing operations (TLTRO) and continued deposit inflows. ### External accounts and macro outlook - Current account deficit increased to 10.7 percent of GDP in 2022 driven by robust domestic demand and elevated import prices. - Current account deficit narrowed to 7.9 percent of GDP (4-quarter moving average) in 2023Q2 with declining energy prices and continued strong tourism performance. - Current account deficit expected to further improve to 7 percent for the year (2023). - External position in 2023 assessed to be weaker than that consistent with medium-term fundamentals and desirable policies (Annex II); assessment used preliminary current account data for 2023. ### Growth projections and composition - Growth projected at 2.3 percent for 2023, moderating to 2.1 percent in 2024, with headline inflation remaining above the ECB euro area target of 2 percent. - Fiscal policy stance will be more contractionary in 2024; primary surplus expected to improve to 2.1 percent of GDP, corresponding to a change of CAPB by ¾ percent of potential GDP. - Headline inflation projected at about 3.5 percent at end-2023 and 2.7 percent at end–2024, mainly driven by normalizing energy and food prices. - Core inflation projected to decline more gradually due to persistent service and processed food prices as well as the impact of wage increases. - Medium-term GDP growth forecast to moderate to about 1¼ percent, reflecting demographic headwinds and expiration of NGEU funding. - Fiscal policy stance broadly neutral from 2025 with the authorities planning to maintain the primary surplus at around 2 percent of GDP in the medium term. - Total investment projected to reach about 17 percent of GDP in the medium term; current euro area average about 23 percent. - Headline inflation projected to reach 2 percent by end-2025. - Current account deficit expected to narrow to around 3 percent of GDP in the medium term. ### Risks and scenarios - Upside inflation risks: escalation of Russia’s war in Ukraine, conflict in Gaza and Israel, weather-related shocks, domestic pressures from recent and expected wage and pension increases, and geoeconomic fragmentation acting as adverse supply shocks. - Growth risks and upside scenarios: - Negative: higher-for-longer euro area inflation and interest rates, renewed energy and food price pressures, extreme climate events disrupting tourism. - Positive: stronger-than-projected private consumption if energy price normalization passes through more strongly, faster global tourism recovery, acceleration of structural reforms, stronger market reactions to investment grade upgrade lowering financing costs and spurring foreign investment. ### Policy recommendations (fiscal and structural) - Maintain growth-friendly fiscal consolidation: CAPB tightening by about ¾ percent of potential GDP in 2024 and maintain a primary surplus of about 2 percent of GDP in the medium term to improve public debt sustainability while preserving space for green and digital public investment and critical social spending. - Save better-than-expected revenue for debt reduction. - Reconsider poorly targeted cuts in SSCs and solidarity tax that would incur permanent annual fiscal cost of 1 percent of GDP; offset permanent revenue loss with benefit adjustments and base-broadening measures. - Strengthen means-tested Guaranteed Minimum Income scheme to serve as the primary safety net against future shocks and climate-related disasters. - Resist excessive increases in public-sector wages and pensions; protect critical social assistance and allow room for investment. - Stick to pension indexation formula; avoid ad hoc pension increases. - Advance fiscal structural reforms: - Enhance revenue collection: address tax evasion, condition reductions of lump-sum taxes for the self-employed on improved tax compliance, operationalize Greece Register of Real Beneficiaries, promote digital transactions, limit large cash transactions, and rationalize tax incentives. - Improve spending efficiency: implement performance budgeting, spending reviews, accounting reform, and strengthen public investment management practices related to recurring operation and maintenance spending. - Continue efforts to establish a one-stop portal for social benefits by end–2024 to enhance access, transparency, and efficiency of the social safety net. *Source: IMF staff report excerpt (GREECE).* ### 21. The authorities agreed that a primary surplus of about 2 percent of GDP would strike a ### 21. The authorities agreed that a primary surplus of about 2 percent of GDP would strike a ### Fiscal stance and revenue mobilization - Authorities view a primary surplus of about 2 percent of GDP as striking a balance between ensuring public debt sustainability and supporting green and inclusive growth. - Fiscal consolidation of another 1 percentage point of GDP in 2024 in terms of primary balance would not derail the recovery given robust domestic private demand. - VAT compliance gap: fell from 29 percent in 2017 to 17.8 percent in 2021 and is expected to further decline to below 10 percent by 2026 on the back of ongoing efforts (new legislation on self-employed taxation, harnessing digital technologies for tax monitoring and auditing). - These revenue and efficiency efforts are expected to contribute to maintaining a primary surplus of about 2 percent of GDP in the medium term while supporting higher social spending in healthcare and education and public investment within the EU’s net expenditure rule. - Ongoing reforms in digitalizing and modernizing public administration and enhancing public investment management would improve public finance efficiency. *Source: 1grcea2024001* ### Safeguarding financial stability — current risks and vulnerabilities - Systemic risk is relatively limited with low private sector leverage, but it has increased since last year and the banking sector faces significant challenges ahead. - Debt-servicing cost for households is one of the highest in the euro area; higher interest rates could further increase household debt-servicing burden, leading to banks’ asset quality deterioration and weighing on their internal capital-generation capacity. - Credit-to-GDP gap: staff estimate it remained positive (credit gap estimated using Baba and others (2020)). - Residential house price overvaluation in 2023 is estimated in the range of 6-29 percent (model-based approach suggests 8 percent using the IMF model; price-to-income and price-to-rent ratios suggest 6 and 29 percent, respectively). - Macro-financial risks from further financial tightening combined with growth slowdown amid house price overvaluation could result in bank balance sheet deterioration and house price corrections, with adverse feedback to the real economy. *Source: 1grcea2024001* ### Close monitoring of interest-rate, funding and liquidity risks - Around 80 percent of bond portfolios are held at amortized cost and banks have been hedging interest-rate risks; impact of recent steep interest rate increases on banks’ profits and capital has been limited so far. - Supervisory actions recommended: - Targeted reviews of banks’ interest rate and credit spread assessment and management. - Bank interest-rate-risk stress tests to establish resilience to potential further interest rate increases. - Liquidity and funding pressures: - Replacement of TLTROs with more expensive central bank refinancing or market funding, and MREL requirements, may put pressure on liquidity and funding prudential ratios. - Despite fulfilling interim MREL targets in 2022 and issuing instruments in 2023, the shortfall for Greek banks against the binding target in 2025 is the largest among euro area countries. - Supervisors should ensure banks integrate conservatively designed and executed liquidity stress tests into risk management frameworks and assess appropriateness of TLTRO exit strategies for banks materially reliant on this funding. *Source: 1grcea2024001* ### Proactive credit risk management and profitability - Ongoing financial tightening combined with growth deceleration will likely weigh on asset quality over time; the 2023 EBA stress test results help identify pressure points for credit risk. - Targeted reviews of loan origination, including real estate portfolios, to assess compliance with EBA guidelines. - Banks should ensure sustainable profitability to enhance capital adequacy and its quality: - Recent profitability rebound since 2022 has been boosted by cyclical and one-off factors; uncertainty remains over medium-to-long-term prospects. - Supervisors should ensure dividend payouts account fully for key risks to prevent extraordinary payments and assure bank capital accumulation. - Banks should adapt business models and strengthen risk management to avoid loan pricing that does not cover all costs and risks. - High Deferred Tax Credits (DTCs) weaken loss-absorption capacity; a sustainable long-term solution agreeable to authorities and European Institutions should be discussed while avoiding recourse to public funds. *Source: 1grcea2024001* ### Strengthening macroprudential toolkit - Further strengthen systemic risk assessment framework to better identify and monitor emerging systemic risks. - Complement organic capital accumulation and issuances with a positive neutral countercyclical capital buffer (CCyB) and borrower-based measures (BBMs) for mortgage borrowers. - Specific recommendations: - CCyB: activation and gradual raising over time based on systemic risk assessment; once activated could be gradually raised with sufficient lead-up time for banks to raise capital. - BBMs: introduce caps on loan-to-value (LTV) ratio and debt service-to-income (DSTI) ratios; legislation enacted in 2023 allows supervisors to set caps initially at less binding levels and tighten gradually. - Sequencing: BBMs could be introduced with immediate effects; CCyB rate increase path should be announced with a grace period of at least one year. - Rationale: bolster resilience against potential systemic shocks and contain vulnerabilities from a potential housing boom. *Source: 1grcea2024001* ### Authorities’ views on financial sector resilience - Authorities highlighted significant progress in restoring financial system health and agreed on the need to further enhance resilience. - Recognized structural challenges: low capital management buffers and capital quality, profit sustainability concerns, a substantial MREL gap, and lingering vulnerabilities in smaller banks. - Banking supervisors envisage a conservative approach to bank dividend payouts in 2024 and beyond. - Authorities agreed that activating CCyB and BBMs (caps on DSTI and LTV) would help enhance banks’ resilience. - Expected that planned completion of ongoing divestment of bank capital shares by end-2025, combined with recent regaining of investment grade, would improve financing conditions and help reduce the bank-sovereign nexus. - Noted increasing benefits of the new insolvency framework but substantial distressed debt still in the economy; envisaged increased supervisory scrutiny of credit servicers falling behind on performance targets for securitized portfolios. *Source: 1grcea2024001* ### Implementing reforms for higher and greener growth - Structural reforms to lift medium-term growth and alleviate inflationary pressure are critical given Greece’s negative demographic outlook: - Working age population decline: about 0.7 percent annually over the past decade and projected to further decline by about 1 percent annually until 2030 (European Commission (2021), Ageing Report). - Negative demographic outlook estimated to reduce potential growth by about ½ percentage point. - Expeditious implementation of the NRRP would boost resilience, growth, and climate objectives. - Priorities to boost dynamism and productivity: - Accelerate regulatory reforms to rationalize regulations, facilitate firm entry and exit, and job transitions to improve business dynamism. - Further digitalization with sharper focus on SMEs (SMEs account for over 70 percent of total employment). - Raise labor force participation and upgrade skills: scale up lifelong learning for digital and green skills; improve availability and affordability of childcare; reduce marginal income tax of second earners to raise female labor force participation. - Rely on independent expert committee and social dialogues in wage bargaining to raise workers’ income sustainably without undermining competitiveness. - Judicial and insolvency reforms: - Distressed debt at about €70 billion (34 percent of GDP) under recovery by credit servicers. - Accelerate debt resolution through out-of-court workouts and formal proceedings under the new insolvency code; improve judicial efficiency to facilitate restructuring of viable businesses and exit of non-viable ones. - Improve data gathering to support diagnostics and targeted reforms. *Source: 1grcea2024001* ### Climate and green transition actions and financing needs - Adaptation and mitigation cost estimates: - Adaptation cost estimated to be 1.5 percent of GDP annually over the next 25 years. - Achieving the authorities’ mitigation target requires substantial green investment of over 20 percent of 2021 GDP. - Significant financing gap persists despite some NGEU funding for climate change; mobilizing private green financing under the NRRP is critical (simplify procedures, rationalize spatial planning for strategic green investment, strengthen incentives for energy efficiency and innovations). - Key policy directions: - Develop renewable energy and improve energy efficiency in transport and buildings given dominance of fossil fuels. - Strong implementation of new policy framework for renewables, including streamlining licensing and better integrating renewables into an upgraded electricity grid. - Consider raising carbon pricing (including excise and feebates) in non-ETS sectors such as transport to incentivize rapid and efficient green transition as energy price normalizes. - Strengthen climate adaptation in public financial and investment management, improve incentives for insurance solutions for climate risk sharing, phase out untargeted energy subsidies to generate efficiency gains, and enhance regulation and supervision of climate-related financial risks leveraging ECB supervisory actions. *Source: 1grcea2024001* ### 35. Greece’s economic outlook has improved notably but significant challenges remain. ### Greece’s economic outlook has improved notably but significant challenges remain ### Macroeconomic outlook and drivers - Real GDP is expanding beyond its pre-pandemic trend level, driven by: - Strong tourism recovery. - Strengthening investment catalyzed by NGEU funding and FDI inflows. - Public debt dynamics: - The public debt-to-GDP ratio has fallen below its pre-pandemic level—general government debt was 167.4 (percent of GDP) in 2023 compared with 185.5 (percent of GDP) in 2019. - Limited financing risks in the medium term due to a favorable debt structure. - Structural constraints weighing on medium-term growth: - Low household savings. - Still low level of investment. - Increasing climate change risks. - External position: - The external position in 2023 is assessed to be weaker than that consistent with medium-term fundamentals and desirable policies (assessment used preliminary 2023 current account data). ### Risks to the outlook - Growth risks: - More balanced overall, with upside from faster structural reform implementation. - Inflation risks: - Tilted upward. Key upside risks include: - Potential escalation of Russia’s war in Ukraine and the conflict in Gaza and Israel disrupting trade, triggering renewed energy and food price pressures, and undermining confidence. - Higher-than-expected persistence in euro area inflation and higher-for-longer interest rates, weighing on regional and domestic demand. - Weather-related shocks and domestic pressures from recent and expected wage and pension increases. - Policy-interaction risk: - Higher near-term fiscal tightening could limit inflationary pressures but needs to be growth-friendly to preserve medium-term momentum. ### Fiscal policy and recommendations - Objective: growth-friendly fiscal consolidation to strengthen public debt sustainability while supporting inclusive and green growth. - Near- and medium-term stance: - Further tightening in the near term and maintaining a primary surplus in the medium term would help strengthen public debt sustainability while limiting additional pressure on inflation. - Composition priorities: - Emphasize public investment, including green investment. - Protect critical social spending such as healthcare and education. - Governance and revenue: - Advance fiscal structural reforms, including ongoing efforts to address tax evasion, to enhance fiscal governance and improve fiscal policy efficiency. ### Financial sector resilience and policy measures - Observations: - Bank profitability has been temporarily elevated due to higher interest rates. - Legacy NPLs have been offloaded, supporting capital adequacy, though capital remains below the EU average. - Recommendations to strengthen resilience in a higher-for-longer interest rate environment: - Strengthen monitoring and management of interest rate, liquidity and funding, and credit exposure risks. - Use temporarily elevated bank profits to build capital buffers and improve capital quality. - Activate a positive neutral countercyclical capital buffer to guard against potential systemic shocks. - Implement borrower-based measures for mortgage loan borrowers—such as caps on loan-to-value (LTV) and on debt service-to-income (DSTI) ratios—to enhance household resilience and contain banking system vulnerabilities. ### Structural reforms to lift medium-term growth - Key reform areas: - Continue digitalizing public administration. - Tackle barriers to competition to unlock higher private investment and improve productivity. - Raise labor participation and improve workforce skills to increase labor market dynamism, facilitating digitalization and the green transition. - Strengthen judicial system reforms and out-of-court proceedings to improve business dynamism and productivity, reduce bank NPLs, and increase financial sector resilience by improving distressed debt recovery. ### Climate goals and green transition - Challenge: dominance of fossil fuels in energy supply. - Policy priorities to accelerate green transition and energy security: - Strong implementation of the policy framework for renewables, including measures to streamline the licensing framework for new investment and better integrate renewables in an upgraded electricity grid. - Consider raising carbon pricing (including excise and feebates) in non-ETS sectors such as transport to incentivize a rapid and efficient green transition as energy prices normalize. ### Institutional recommendation - It is recommended that the next Article IV consultation take place on the standard 12–month cycle. *Source: IMF staff report chapter — Greece country note (excerpts).* ### Annex I. Sovereign Risk and Debt Sustainability Assessment ### Annex I. Sovereign Risk and Debt Sustainability Assessment ### Risk of Sovereign Stress — Summary and Horizon Assessments - Overall: Moderate - Staff's assessment of "moderate" reflects moderate medium-term risk of sovereign stress. - Medium term: High (Mechanical signal) → Final assessment: Moderate - Medium-term risks are assessed to be “moderate” against a mechanical high signal. - The fan chart module indicates high risk largely due to its greater width and the still high debt level. - The GFN module suggests moderate risk with a combination of macro shock driving up GFNs up to 20 percent of GDP. - Mitigating factors: - Favorable structure of the public debt (with a high share of official holdings at low fixed rates, ultra-long maturity, and long grace periods). - A large cash buffer (€14 billion) that has been put aside. - Proactive debt management via hedging that helps limit financing costs. - Fan chart: High - GFN: Moderate - Stress test — Natural disasters: (no final numeric assessment provided in text) - Long term: ... n.a. - The public debt-to-GDP ratio is projected to decline eventually in the long run with manageable GFNs under several stress scenarios capturing demographic and climate pressures, largely reflecting the favorable debt structure. - However, uncertainty remains high to reach a definitive assessment regarding long-term sustainability. - Key long-term risks include: - The development in long-term neutral rate and risk premia. - The sustainability of high primary surplus. - The scope and pace of structural reform implementation and its potential to more than offset demographic headwinds (see IMF Country Report No. 21/154). - Sustainability assessment: Not required for surveillance countries - Debt stabilization in the baseline: Yes ### DSA Summary Assessment — Commentary - Greece’s overall risk of sovereign stress is assessed to be moderate in the medium term, with the public debt-to-GDP ratio on a downward trajectory and manageable rollover risks, reflecting the favorable structure of the public debt. However, there is significant uncertainty about the long-term sustainability. - Note on concept: - The risk of sovereign stress is a broader concept than debt sustainability. Unsustainable debt can only be resolved through exceptional measures (such as debt restructuring). In contrast, a sovereign can face stress without its debt necessarily being unsustainable, and there can be various measures—that do not involve a debt restructuring—to remedy such a situation, such as fiscal adjustment and new financing. - Procedural notes from source: - 1/ The near-term assessment is not applicable in cases where there is a disbursing IMF arrangement. In surveillance-only cases or in cases with precautionary IMF arrangements, the near-term assessment is performed but not published. - 2/ A debt sustainability assessment is optional for surveillance-only cases and mandatory in cases where there is a Fund arrangement. The mechanical signal of the debt sustainability assessment is deleted before publication. In surveillance-only cases or cases with IMF arrangements with normal access, the qualifier indicating probability of sustainable debt ("with high probability" or "but not with high probability") is deleted before publication. ### Debt Coverage and Disclosures - Commentary: Debt coverage reported is general government and follows ESA 2010, thus not including other accounts payable and insurance, pensions and standardized guarantee schemes. Cross-holdings are netted out. The debt perimeter includes net SDR holdings, NGEU loans, and the stock of deferred interest payments on EFSF loans (SNA adjustments). - Debt coverage in the DSA: 1/CGGGNFPSCPSOther (as presented in source) - Question: 1a. If central government, are non-central government entities insignificant? — n.a. - Subsectors included in the chosen coverage in (1) above (Subsectors captured in the baseline — Inclusion): - 1 Budgetary central government — Yes - 2 Extra budgetary funds (EBFs) — Yes - 3 Social security funds (SSFs) — Yes - 4 State governments — Yes - 5 Local governments — Yes - 6 Public nonfinancial corporations — Yes - 7 Central bank — No - 8 Other public financial corporations — Yes - Instrument coverage: (header present; no further details in supplied content) - Accounting principles: (header present; no further details in supplied content) *Source: IMF staff.* ### 5. Debt consolidation across sectors: ### 5. Debt consolidation across sectors ### Public debt structure and key features - Public debt at end-2022 was almost entirely denominated in domestic currency (euro) and at fixed rates, with a weighted average maturity of 19 years. - Close to three quarters of the debt is held by external official creditors. - A significant cash buffer of €14 billion has been put aside which can be used to further reduce debt relative to the baseline projection. - Debt composition indicators shown include: - Debt by Currency (percent of GDP) — perimeter: general government. - Public Debt by Holder (percent of GDP) — perimeter: general government. - Public Debt by Governing Law, 2022 (percent) — perimeter: general government. - Debt by Instruments (percent of GDP) — perimeter: general government. - Public Debt by Maturity (percent of GDP) — perimeter: general government. ### Baseline scenario and medium-term projections (Table 1) - Public debt (percent of GDP): Actual 2022 = 179.5; 2023 = 167.4; 2024 = 158.0; 2025 = 151.9; 2026 = 148.6; 2027 = 145.3; 2028 = 142.3; 2029 = 139.4; 2030 = 137.2; 2031 = 135.3; 2032 = 133.6. - Change in public debt (percent of GDP): 2022 = -21.6; 2023 = -12.1; 2024 = -9.4; 2025 = -6.1; 2026 = -3.3; 2027 = -3.3; 2028 = -3.1; 2029 = -2.9; 2030 = -2.2; 2031 = -1.9; 2032 = -1.6. - Contribution of identified flows matches change values for 2022–2032 (e.g., 2024 = -9.4). - Primary deficit (percent of GDP): 2022 = -0.1; 2023 = -1.1; 2024 = -2.1; 2025 = -2.1; 2026 = -2.1; 2027 = -2.1; 2028 = -2.1; 2029 = -2.0; 2030 = -1.9; 2031 = -1.6; 2032 = -1.4. - Noninterest revenues (percent of GDP): 2022 = 50.5; 2023 = 47.4; 2024 = 46.9; 2025 = 47.1; 2026 = 46.3; 2027 = 45.3; 2028 = 44.0; 2029 = 44.0; 2030 = 44.0; 2031 = 44.1; 2032 = 44.1. - Noninterest expenditures (percent of GDP): 2022 = 50.4; 2023 = 46.3; 2024 = 44.8; 2025 = 45.0; 2026 = 44.2; 2027 = 42.9; 2028 = 42.0; 2029 = 42.0; 2030 = 42.2; 2031 = 42.4; 2032 = 42.6. - Automatic debt dynamics (percent of GDP): 2022 = -22.4; 2023 = -9.4; 2024 = -5.8; 2025 = -3.3; 2026 = -1.9; 2027 = -1.2; 2028 = -0.8; 2029 = -0.7; 2030 = -0.4; 2031 = -0.3; 2032 = -0.2. - Real interest rate and relative inflation (percent): 2022 = -11.9; 2023 = -5.3; 2024 = -2.4; 2025 = -0.8; 2026 = 0.2; 2027 = 0.5; 2028 = 0.9; 2029 = 1.0; 2030 = 0.9; 2031 = 0.9; 2032 = 1.0. - Real growth rate contributions (percent): 2022 = -10.6; 2023 = -4.1; 2024 = -3.4; 2025 = -2.4; 2026 = -2.1; 2027 = -1.7; 2028 = -1.7; 2029 = -1.6; 2030 = -1.2; 2031 = -1.2; 2032 = -1.2. - Other identified flows (percent of GDP): 2022 = 1.6; 2023 = -1.6; 2024 = -1.5; 2025 = -0.7; 2026 = 0.6; 2027 = 0.0; 2028 = 0.0; 2029 = 0.0; 2030 = 0.0; 2031 = 0.0; 2032 = 0.0. - Contribution of residual (percent of GDP): 2022 = -0.7; 2023 = 0.0; 2024 = 0.0; 2025 = 0.0; 2026 = 0.0; 2027 = 0.0; 2028 = -0.2; 2029 = -0.2; 2030 = 0.0; 2031 = 0.0; 2032 = 0.0. - Gross financing needs (GFN, percent of GDP): 2022 = 19.0; 2023 = 12.5; 2024 = 9.8; 2025 = 9.1; 2026 = 10.2; 2027 = 8.9; 2028 = 11.0; 2029 = 9.0; 2030 = 9.2; 2031 = 10.7; 2032 = 9.9. - Of which: debt service (percent of GDP): 2022 = 19.1; 2023 = 13.6; 2024 = 11.9; 2025 = 11.1; 2026 = 12.2; 2027 = 10.9; 2028 = 13.1; 2029 = 11.0; 2030 = 11.1; 2031 = 12.3; 2032 = 11.4. - Local currency debt service (percent of GDP): 2022 = 18.2; 2023 = 13.6; 2024 = 11.9; 2025 = 11.1; 2026 = 12.2; 2027 = 10.9; 2028 = 13.1; 2029 = 11.0; 2030 = 11.1; 2031 = 12.3; 2032 = 11.4. - Foreign currency debt service (percent of GDP): 2022 = 0.9; 2023 = 0.0; 2024 = 0.0; 2025 = 0.0; 2026 = 0.0; 2027 = 0.0; 2028 = 0.0; 2029 = 0.0; 2030 = 0.0; 2031 = 0.0; 2032 = 0.0. - Memo macro assumptions: - Real GDP growth (percent): 2022 = 5.6; 2023 = 2.3; 2024 = 2.1; 2025 = 1.6; 2026 = 1.4; 2027 = 1.2; 2028 = 1.2; 2029 = 1.2; 2030 = 0.9; 2031 = 0.9; 2032 = 0.9. - Inflation (GDP deflator; percent): 2022 = 7.8; 2023 = 4.8; 2024 = 3.4; 2025 = 2.5; 2026 = 1.9; 2027 = 1.9; 2028 = 1.8; 2029 = 1.8; 2030 = 1.9; 2031 = 1.9; 2032 = 1.9. - Nominal GDP growth (percent): 2022 = 13.8; 2023 = 7.3; 2024 = 5.5; 2025 = 4.1; 2026 = 3.3; 2027 = 3.1; 2028 = 3.1; 2029 = 3.1; 2030 = 2.8; 2031 = 2.8; 2032 = 2.8. - Effective interest rate (percent): 2022 = 1.1; 2023 = 1.6; 2024 = 1.9; 2025 = 1.9; 2026 = 2.1; 2027 = 2.3; 2028 = 2.4; 2029 = 2.5; 2030 = 2.6; 2031 = 2.6; 2032 = 2.7. ### Realism of baseline assumptions and forecast track record - Commentary notes an optimistic bias historically for public debt to GDP ratio and interest-growth differential, and a pessimistic bias for output gap. - Under the baseline: - Real growth is projected to slow to 2 percent in 2024, sustained by tourism and consumption out of savings accumulated by the pandemic, and converge towards 1.2 percent (around the 10-year average). - Fiscal adjustment is projected to be larger than Greece’s peers but smaller than Greece’s maximum historical record. - Sovereign spread expectation: Greece's sovereign spread is expected to be on a downward path following the Laubach rule given improving debt dynamics and regaining of investment grade status; the baseline implies a more conservative narrowing of the spread to capture uncertainty amid tightening global financial conditions. ### Medium-term risk assessment (Figure 5 and metrics) - Fanchart module mechanical signal: "high" due to relatively sizable width and elevated debt level; fan chart centered around baseline shifts downward relative to 2022 DSA. - Two thirds of debt trajectories stabilize over 10 years in simulations despite rising financing cost for new debt. - GFN module mechanical signal: "moderate." - Risk-mitigating factors: - Greece’s unique debt structure: high share of official holdings at low fixed rates, ultra-long maturity, and long grace periods. - ECB's anti-fragmentation instruments mitigate risks of sharp sovereign spread pickup during market turmoil. - Cash buffer: €14 billion can partially mitigate higher GFN in stress scenarios. - Stress tests: None of the additional stress tests are mechanically triggered; a natural disaster stress test is activated given vulnerability, but GFNs appear manageable. A customized stress test related to outstanding government guarantees (including NPL securitization scheme) results in somewhat higher but manageable medium-term GFNs. - Key quantified medium-term metrics: - Final Fanchart (pct of GDP): Fanchart width = 106.8; Contrib = 1.6. - Probability of debt non-stabilization (percent): 32.7; Contrib = 0.3. - Terminal debt-to-GDP x = 84.7; Contrib = 1.8. - Debt fanchart index (DFI) = 3.7; Risk signal: High. - Average baseline GFN (percent of GDP) = 10.2; Contrib = 3.5. - Banks' claims on the general government (pct bank assets) = 9.7; Contrib = 3.1. - Change in banks' claims in stress (pct banks' assets) = 8.7; Contrib = 2.9. - GFN financeability index (GFI) = 9.5; Risk signal: Moderate. - Medium-term index: Final assessment = Moderate. - Prob. of missed crisis, 2023-2028, if stress not predicted: 72.7 pct. - Prob. of false alarms, 2023-2028, if stress predicted: 3.4 pct. ### Long-term risk assessment and scenarios (Figure 6) - Debt is expected to decline over the next few decades if the medium-term projection is extended or under an alternative "customized" scenario with a less stringent long-term primary balance target; GFN contained at around 10 percent of GDP in these projections. - Uncertainty remains high for definitive long-term sustainability assessment. - Projected debt reduction is maintained despite higher fiscal costs for demographic and climate adaptation needs, reflecting favorable debt structure and recent pension reforms. - However, excess-growth-in-health spending and climate mitigation costs would raise fiscal costs, slow debt reduction, and raise GFNs to around 20 percent of GDP under those stress scenarios. - Notes on long-term projection inputs: - Pension and health expenditure projections follow the 2021 Ageing Report. - Baseline pension projection reflects ongoing pension reforms for benefit and retirement adjustments. - ECG scenario for health expenditure calibrated to capture additional increase (non-demographic) in the Ageing Report. - Calibration of adaptation and mitigation costs follows staff guidance for SRDSF. - Example scenario metrics (summary presentation in figures): - Baseline long-run projection variables: Real GDP growth ~ 1.2%; Primary Balance-to-GDP (custom baseline) ~ 1.5% in one presentation; other long-run assumptions shown as comparisons (historical averages, DSPB scenarios). ### External debt sustainability (Table 2 and Figure 7) - Baseline: External debt (percent of GDP) by year: - 2018 = 235.7; 2019 = 249.0; 2020 = 305.0; 2021 = 311.3; 2022 = 270.1; 2023 = 259.0; 2024 = 250.4; 2025 = 243.9; 2026 = 238.0; 2027 = 233.2; 2028 = 228.1. - Debt-stabilizing non-interest current account = -6.0. - Change in external debt (percent of GDP): 2018 = 3.4; 2019 = 13.3; 2020 = 55.9; 2021 = 6.3; 2022 = -41.2; 2023 = -11.1; 2024 = -8.6; 2025 = -6.5; 2026 = -5.8; 2027 = -4.9; 2028 = -5.0. - Identified external debt-creating flows (percent of GDP): 2018 = -1.3; 2019 = -4.9; 2020 = 34.0; 2021 = -24.0; 2022 = -29.8; 2023 = -0.7; 2024 = -1.5; 2025 = -0.5; 2026 = -0.8; 2027 = -0.9; 2028 = -1.1. - Current account deficit, excluding interest payments (percent of GDP): 2018 = 0.5; 2019 = -0.8; 2020 = 4.4; 2021 = 5.2; 2022 = 8.8; 2023 = 3.9; 2024 = 3.6; 2025 = 2.7; 2026 = 1.8; 2027 = 1.0; 2028 = 0.6. - Deficit in balance of goods and services (percent of GDP): 2018 = 1.8; 2019 = 0.9; 2020 = 6.8; 2021 = 7.5; 2022 = 5.8; 2023 = 5.6; 2024 = 4.7; 2025 = 3.5; 2026 = 2.5; 2027 = 1.7; 2028 = 1.2. - Exports (percent of GDP): 2018 = 38.7; 2019 = 39.6; 2020 = 31.3; 2021 = 40.9; 2022 = 49.1; 2023 = 44.9; 2024 = 44.6; 2025 = 44.2; 2026 = 44.0; 2027 = 44.0; 2028 = 44.2. - Imports (percent of GDP): 2018 = 40.5; 2019 = 40.5; 2020 = 38.1; 2021 = 48.3; 2022 = 58.9; 2023 = 50.6; 2024 = 49.3; 2025 = 47.7; 2026 = 46.6; 2027 = 45.7; 2028 = 45.4. - Net non-debt creating capital inflows (percent of GDP): 2018 = -1.6; 2019 = -2.1; 2020 = -1.0; 2021 = -3.4; 2022 = -2.5; 2023 = -2.1; 2024 = -2.9; 2025 = -1.8; 2026 = -1.8; 2027 = -1.8; 2028 = -1.7. - Automatic debt dynamics (percent of GDP): 2018 = -0.3; 2019 = -2.0; 2020 = 30.6; 2021 = -25.8; 2022 = -36.2; 2023 = -2.5; 2024 = -2.3; 2025 = -1.4; 2026 = -0.8; 2027 = -0.1; 2028 = 0.0. - Contribution from nominal interest rate (percent): 2018 = 3.0; 2019 = 3.1; 2020 = 2.9; 2021 = 1.9; 2022 = 1.9; 2023 = 3.2; 2024 = 2.8; 2025 = 2.4; 2026 = 2.5; 2027 = 2.6; 2028 = 2.6. - Contribution from real GDP growth (percent): 2018 = -3.7; 2019 = -4.6; 2020 = 25.3; 2021 = -22.4; 2022 = -17.1; 2023 = -5.7; 2024 = -5.0; 2025 = -3.7; 2026 = -3.2; 2027 = -2.7; 2028 = -2.6. - Residual, incl. change in gross foreign assets (percent of GDP): 2018 = 4.7; 2019 = 18.2; 2020 = 21.9; 2021 = 30.3; 2022 = -11.4; 2023 = -10.5; 2024 = -7.0; 2025 = -6.0; 2026 = -5.0; 2027 = -4.0; 2028 = -3.9. - External debt-to-exports ratio (in percent): 2018 = 608.7; 2019 = 628.9; 2020 = 975.0; 2021 = 761.7; 2022 = 549.8; 2023 = 576.2; 2024 = 561.2; 2025 = 551.8; 2026 = 540.7; 2027 = 530.3; 2028 = 515.7. - Gross external financing need (in billions of US dollars and percent of GDP): - USD bn: 2018 = 141.8; 2019 = 124.7; 2020 = 144.2; 2021 = 213.8; 2022 = 228.7; 2023 = 230.1; 2024 = 250.1; 2025 = 257.6; 2026 = 263.2; 2027 = 256.4; 2028 = 260.2. - Percent of GDP: 2018 = 66.8; 2019 = 60.8; 2020 = 76.6; 2021 = 99.5; 2022 = 105.0; 2023 = 95.4; 2024 = 97.7; 2025 = 96.4; 2026 = 95.2; 2027 = 90.3; 2028 = 89.2. - Key macro assumptions underlying baseline (selected): - Real GDP growth (percent): 2018 = 1.7; 2019 = 1.9; 2020 = -9.3; 2021 = 8.4; 2022 = 5.6; 2023 = 0.7; 2024 = 4.7; 2025 = 2.3; 2026 = 2.1; 2027 = 1.6; 2028 = 1.4; 2029 = 1.2. - GDP deflator in US dollars (change percent): 2018 = 4.5; 2019 = -5.0; 2020 = 1.2; 2021 = 5.2; 2022 = -4.0; 2023 = -1.4; 2024 = 6.3; 2025 = 8.3; 2026 = 3.9; 2027 = 2.8; 2028 = 2.1; 2029 = 1.5. - Nominal external interest rate (percent): 2018 = 1.4; 2019 = 1.3; 2020 = 1.1; 2021 = 0.7; 2022 = 0.6; 2023 = 1.2; 2024 = 0.3; 2025 = 1.3; 2026 = 1.1; 2027 = 1.0; 2028 = 1.0; 2029 = 1.1. - Growth of exports (US$ terms, percent): 2018 = 17.9; 2019 = -1.1; 2020 = -27.5; 2021 = 49.0; 2022 = 21.9; 2023 = 7.4; 2024 = 21.8; 2025 = 1.3; 2026 = 5.3; 2027 = 3.4; 2028 = 3.1; 2029 = 2.6. - Growth of imports (US$ terms, percent): 2018 = 19.8; 2019 = -3.2; 2020 = -13.8; 2021 = 44.7; 2022 = 23.5; 2023 = 8.0; 2024 = 19.7; 2025 = -4.9; 2026 = 3.5; 2027 = 1.0; 2028 = 1.0; 2029 = 0.7. - External debt sustainability bound tests (Figure 7): - Interest rate shock scenario label shows baseline external debt around 228–230 (percent of GDP) across projections with shocks applied. - Figures illustrate individual permanent one-half standard deviation shocks to real interest rate, growth rate, and current account balance, and combined shocks; boxes show average projections for baseline and scenarios with ten-year historical averages for reference. *Source: IMF staff estimates and projections (from the provided content).* ### Annex II. External Sector Assessment ### Annex II. External Sector Assessment ### Overall Assessment - The external position of Greece is assessed to be weaker in 2023 than the level implied by fundamentals and desirable policies based on preliminary data. - The current account (CA) deficit is projected to narrow to 7.1 percent of GDP in 2023 with normalizing energy prices. - The CA deficit widened temporarily during the pandemic and the energy crisis and is expected to revert to its pre-pandemic level over the medium term as the output gap is projected to close gradually. - The net international investment position (NIIP) is expected to further improve in line with the declining public debt. ### Potential Policy Responses - Prudent fiscal policy to maintain a primary surplus, which will help lower the public debt-to-GDP ratio and thereby the large and negative NIIP. - Structural reforms to raise potential growth, including: - strengthening labor force participation (particularly for youth and female), - reskilling and upskilling the labor force, - facilitating green and digital transition, - rationalizing regulations to improve business dynamism, - reducing product market rigidities to increase competition. ### Foreign Assets and Liabilities: Position and Trajectory - Background: Greece’s NIIP improved to -149 percent of GDP in 2022, from -179 percent in 2021, despite the further widening of CA deficit, reflecting asset accumulation (outward direct investment and debt securities) and continued strong nominal GDP growth. - Assessment: - The NIIP-to-GDP ratio is projected to improve in the medium term along with narrowing CA deficits. - Risks to the large NIIP are mitigated by its favorable creditor, currency, and interest rate structure: - two thirds of external liabilities remain in the official sector; - most liabilities are euro-denominated; - the official part has been fixed at low rates. - Prudent fiscal policies and active liabilities management are expected to reduce general government’s external liabilities, with the residual external financing needs covered by private flows amid Greece’s improving creditworthiness. - The NIIP could deteriorate if downside risks (lower growth, adverse shocks to terms of trade, and loose fiscal policies) materialize. - Key 2022 (% GDP) positions: - NIIP: -149 - Gross Assets: 153 - Debt Assets: 126 - Gross Liab.: 302 - Debt Liab.: 268 ### Current Account - Background: - The CA deficit is projected to narrow to 7.1 percent of GDP in 2023, from 10.7 percent in 2022, reflecting an improving trade balance. - Merchandise trade deficit is narrowing with normalizing energy import prices. - Services surplus is expected to further widen on continued strong performance of tourism. - The CA deficit is expected to converge to its pre-pandemic level only gradually over the medium term as the economy is expected to grow above potential in the near term driven by robust private consumption and strong investment growth financed by EU resources. - Assessment (2023 projections and gaps): - 2023 (% of GDP): - CA: -7.1 - Cycl. Adj. CA: -6.9 - EBA Norm: -3.9 - EBA Gap: -3.0 - COVID-19 Adj.: 0 - Staff Gap: -3.0 - The preliminary assessment using projected 2023 CA suggests a CA gap of -3 percent of GDP, with a moderate policy gap of 0.6 percent of GDP, reflecting a small cyclical adjustment and a negative EBA norm (- 3.9 percent of GDP). - A sizable residual (around 4 percent of GDP) remains for 2023, which may reflect distortions in product and labor markets that hinder Greece’s international competitiveness but not captured by the EBA model. ### Real Exchange Rate - Background: - The unit-labor-cost-based REER (ULC-REER) fell by 26 percent during 2012–19. - The CPI-based REER (CPI-REER) fell by less over the same period. - As of 2023Q2, the ULC-REER fell another 8.4 percent since 2019, mostly in 2021-22. - The CPI-REER fell 3.4 percent over the same period and returned to its early 2000s levels. - Assessment: - The IMF staff CA gap implies a REER gap of 7 percent (overvaluation) for 2023 (applying a semi-elasticity of 0.39). - The EBA REER index regression estimates the REER gap to be 6 percent in 2023, while the EBA REER level regression estimates much larger gaps in the range of 35-40 percent. - Both EBA REER models involve large unexplained residuals and significant standard errors for the calculated norm, and the CPI-REER measure used for the assessment could be affected by non-wage costs. - Staff considers the EBA REER model results less reliable and favors the EBA CA model assessment as the overall assessment. ### Capital and Financial Accounts: Flows and Policy Measures - Background: - The CA deficit in 2022 was mostly financed by other investment and FDI flows (9 percent of GDP and 2.2 percent of GDP, respectively, in net terms), and the capital account. - Inward FDI surged to 3.1 percent of GDP in 2022, with strong inflows into financial and insurance activities, real estate, and the manufacturing sector, and is expected to decelerate but remain above the pre-pandemic level in 2023. - The capital account inflow is mainly related to EU funds disbursement and is projected to persist into the medium term. - Financial conditions have tightened but Greece’s sovereign spread remains stable. - Assessment: - Rollover risks of public external debt, the largest component of Greece’s external liabilities, are mitigated by: - the government’s large cash buffer, - the large share of official loans with ultra-low interest rates and ultralong maturities, - the ECB's announcement that PEPP proceeds could be reinvested into Greek government bonds if needed until 2024. - The cost of external financing could be further contained as Greece is restored to the investment grade. - A steady improvement in the business climate, including from continued efforts on structural reforms, is needed to promote sustainable FDI further. ### FX Intervention and Reserves Level - Background: The euro has the status of a global reserve currency. - Assessment: Reserves held by the EA are low relative to the standard metrics; the currency is free floating. *Source: Annex II. External Sector Assessment (1grcea2024001) — IMF staff.* ### 1. Following further NPL reduction in 2022, the process has been stalled in 2023. The NPL ### 1. Following further NPL reduction in 2022, the process has been stalled in 2023. The NPL ### Asset quality and non-performing loans (NPLs) - NPL ratio of Significant Institutions (SIs) declined from 7 percent at end-2021 to 5 percent at end-2022, mainly due to securitizations and sales of NPL portfolios supported by the Hellenic Asset Protection Scheme (HAPS), which ended in October 2022. - Since HAPS ended, the NPL ratio stabilized in 2023 with limited contribution from collateral liquidations, write-offs, and collections amid slow progress on structural reforms (implementation of the new insolvency law and improvement of judicial efficiency). - Some inflow of new NPLs in 2023Q2 due to the default of a large corporate, more limited curing, and signs of increasing early arrears. - Convergence of SI NPL ratio to the EU average of 2 percent; by contrast, Less Significant Institutions (LSIs) NPL ratio still exceeds 40 percent. - Forward-looking credit risk metric for SIs: share of stage 2 loans (higher risk) continued declining and is now close to the EU average. - Authorities intend to extend HAPS to finalize delayed securitizations of SIs and support reduction of NPLs in the largest LSIs. - NPL coverage ratio for SIs reached 43 percent in 2023Q2, close to the EU average, but with significant heterogeneity across banks. - Amount of distressed debt under recovery: EUR 71.1 billion as of 2023Q2, down from EUR 87.0 billion in 2022Q2. ### Profitability - Return on equity (RoE) increased from deeply negative territory in 2021 to 18 percent in 2022 and 13 percent in 2023Q2. - Greek RoE exceeded the EU average of 11 percent during this period. - Drivers of profitability rebound: - Increasing net interest margins shaped by higher loan pricing and low cost of funding associated with deposits. - High share of floating-rate loans, especially for corporates. - Smaller impairments and profits from interest rate hedges. - Increased net fees and commission income (new loan disbursements, payment and fund transfers, portfolio management, investment banking). - Operating expenses dropped due to staff cost reduction from voluntary redundancy schemes and corporate transformations, plus gains from digital transformation. ### Capital adequacy - Common equity tier 1 capital ratio for SIs: 14 percent (improved in 2022 and 2023H1). - Quality of capital remains a concern despite improvement tied to profitability and issuance of capital instruments. - Share of Deferred Tax Credits (DTCs) in total prudential capital declined from 59 percent in 2021Q4 to 51 percent (amounting to EUR 13.4 billion) in 2023Q2. - Deferred Tax Assets (DTAs) partly included in prudential capital up to EUR 2.4 billion, accounting for an additional 9 percent of total prudential capital, with additional EUR 3.9 billion held by banks but not included in prudential capital. - Risk-weighted assets increased only marginally since end-2021; credit risk accounts for around 85 percent of total assets. ### Liquidity and funding - TLTROIII repayments: around EUR 30 billion repaid; remaining balance EUR 20 billion as of 2023Q2. - Liquidity coverage ratio: 210 percent in 2023Q2 (regulatory requirement surpassed; EU average 160 percent). - Net stable funding ratio: 135 percent in 2023Q2 (EU average 126 percent). - Loan-to-deposit ratio: 60 percent in 2023Q2 (EU average 109 percent). - Intermediate MREL commitments as of end-2022 met with issuances of capital instruments worth EUR3 billion; shortfall against end-2025 target remains the largest among EA countries. ### Outlook and risks — scenario analysis - Baseline scenario (drawing on October 2023 Global Financial Stability Report): long-term inflation expectations well anchored, monetary tightening continues but peaks, gradual decline in term premia, growth deceleration. - Under baseline: despite higher loan losses amid moderating growth, higher interest income and fees/commissions would further increase capital adequacy. - Adverse scenario: more persistent inflation, stronger monetary tightening, higher term premia, recession. - Under adverse: higher loan loss provisions, limited improvement in interest income on performing loans, resulting in capital depletion. - Overall: analysis demonstrates broad resilience of Greek banking system with banks meeting on average regulatory requirements, while underscoring importance of robust credit and interest rate risk management and adequate loan pricing in line with EBA guidelines. ### Structural challenges and supervisory priorities - Bank-sovereign nexus: - Banks increased holdings of Greek government bonds and total exposures to governments between end-2022 and 2023Q2. - Share of DTCs in capital declined by 8 percentage points since end-2021. - Sovereign started divesting ownership via Hellenic Financial Stability Fund. - Unwinding of accommodative monetary policy (including TLTROIII) may pose challenges, potentially raising funding costs for corporates and households. - Preparing for structural transformation: - Greek banks historically reliant on traditional banking activities (lending, deposit-taking) and net interest income. - Gradual diversification to fees and commissions; digitalization and competition from non-banks/Fintech pose strategic and technical challenges. - Recommendation: authorities should ensure banks continuously adapt business models via Business Model Analysis (BMA) within Supervisory Review and Evaluation Process (SREP), combining proactive adaptation with sound risk management. - Climate-related financial risks: - BoG established Climate Change and Sustainability Centre (CCSC) in 2021 and is enhancing oversight. - Recommendation: BoG should perform updated assessment of exposures to physical and transition climate risks. - Implementation of BCBS July 2022 guidelines and EBA ESG guidance, NGFS recommendations, and ISSB disclosure standards should guide medium-term supervisory actions. - BoG assessment: insurance sector not exposed to significant climate-related financial risks, partly due to one of the highest insurance protection gaps in Europe. - Restructuring fragile LSIs: - LSIs represent less than 5 percent of total loans and deposits but some have high NPLs and weak capital/profitability. - Prolonged problems at LSIs could create outsized reputational risk and spillovers to the sector. - Recommendation: intensify corrective supervisory action and/or restructuration to address risks and restore financial soundness of weakest LSIs quickly. - Credit servicers and distressed debt recovery: - Authorities monitor performance of credit servicers recovering former NPLs offloaded under HAPS. - Recovery has underperformed relative to initial business plans for a limited number of transactions; majority of transactions are performing as planned or better. - MoF assesses risk that banks incur losses on senior notes and State guarantees are activated as low in the near term. - Distressed debt amounts: EUR 71.1 billion as of 2023Q2 (EUR 87.0 billion in 2022Q2). - Distressed debt recovery performing relatively better for corporates (corporates account for 33.6 percent of total distressed debt as of 2023Q2, down from 43.0 percent as of 2021Q2). - Recommendation: closely monitor early warning indicators of credit servicer underperformance and decide corrective action as needed. ### Box: Performance of distressed debt recovery by credit servicers (key points) - Monthly transaction monitoring by HAPS Committee; MoF receives monthly detailed confidential reports on each NPL transaction processed through Hercules. - Various performance indicators, triggers, and forward-looking conservative scenario analysis are used. - Lower-than-expected recovery performance limited to a small number of transactions; global performance indicator stood below expected 100 percent by end-November 2022. - A significant proportion of distressed debt due by viable debtors and/or could be restructured, with post-pandemic GDP growth and rising real estate market supporting recovery outlook. - At current stage, MoF does not expect banks to face additional losses nor State guarantees to be activated in the near future; recovery process may last 10 to 15 years or more depending on debt/ collateral typology. - Supervisory oversight: BoG supervises credit servicers (regulated financial institutions); information reported to ECB/SSM. No credit servicer has applied for a license to provide refinancing in addition to debt restructuring. NPL secondary market developing, with sales to unregulated external purchasers; no sale-and-lease-back transactions reported. *Prepared by Alexis Boher and Mariusz Jarmuzek, with inputs from Katherine Dai.* ### 1. Over-indebtedness is still an issue in Greece. Most of the debt of Greek businesses and ### 1grcea2024001 - 1. Over-indebtedness is still an issue in Greece. Most of the debt of Greek businesses and ### Scope and key statistics - Most debt of Greek businesses and households is with financial institutions and with the state, including overdue taxes and social security contributions. - The total stock of NPLs stood at EUR 12.7 billion in the first half of 2023 (Bank of Greece, Financial Stability Report, November 2023). - The Hercules securitization scheme has assisted in the removal of NPLs from the balance sheets of the banks, but distressed debt handled by credit servicers still needs restructuring. ### Legal reforms and the Insolvency Code - Restructuring has been promoted as the preferred solution for over-indebtedness, primarily out-of-court. - Law on out-of-court workouts (OCW) of 2017 aimed to facilitate private debt restructuring. - The Insolvency Code of 2020 reorganizes all existing proceedings under a single legal text and includes: - OCW (out-of-court workouts) - Early warnings - A pre-insolvency procedure for rehabilitation of businesses - Liquidation - A bankruptcy procedure for both traders and non-traders - Special provisions for vulnerable debtors ### OCW mechanism, operation, and data reporting - The reformed OCW offers a fast mechanism for restructuring debts with financial institutions and the state. - The OCW relies on an electronic platform run by the General Secretariat for Financial Sector and Private Debt Management (Ministry of Economy and Finance) and on interconnected databases to facilitate debtor assessment and negotiation. - Businesses and non-business debtors can restructure debts with financial institutions (including credit servicers) and with the state (taxes and social security contributions), including long-term rescheduling and significant write-downs. - Secondary legislation includes an algorithm that sets the conditions for state participation in restructuring agreements. - The General Secretariat produces data reports on the OCW mechanism that classify information into: - Information on applications: applications vs final submissions; monthly evolution; breakdown by natural/legal persons and creditors; bilateral vs multilateral restructurings; amounts by debt to financial institutions vs debt to the state; debt status (current, delinquent, denounced); reported liquidation value vs amount of debt. - Stock and flow: number of applications; stage in proceeding; concluded agreements; approval rates by creditors (broken down by financial institutions and the state, and by bilateral/multilateral restructurings); acceptance rates by debtors; reasons for rejection; pipeline of expected restructurings. - Restructuring agreements: restructured amount (total and average); classification by rescheduling period and haircut; concessions by financial institutions vs the state; average haircut per debt type (debts to the state, mortgages, business loans, consumer loans). - Additional information: geographical distribution of applications by number and amount of debt involved. - Insolvency activity reports draw on the Electronic Solvency Register and cover: - Pre-insolvency proceedings (rehabilitation): number of applications, requests for precautionary measures, stages, ratification judgments. - Bankruptcy: monthly evolution of applications, number, procedural stage, cumulative cases. - Early warning: number of applications and status (not technically a restructuring proceeding). - Vulnerable debtors: number of applications, number of certifications, number of decisions of non-eligibility; average net income and average value of primary residence for certified and non-eligible applicants. ### Enhancements suggested for data reports and technological infrastructure - OCW platform has very powerful data gathering capacity; data quality and quantity exceed information available for other restructuring mechanisms in Europe. - Reports could be organized along well-established dimensions: cost, duration, and outcome. - Cost: OCW has no costs to the debtor; legal/financial advice costs are variable and unlikely to be captured by current data collection. - Duration: reports include detailed duration data for each step; possible to establish average time of successful applications and present flowcharts indicating average times to identify bottlenecks. - Outcome: reports include proceedings closed without success and those with agreements; detailed conditions such as rescheduling and haircuts; recommended to show amounts and percentage of prospective recoveries for creditors. - Additional debtor demographics would be useful: economic activity, age, gender, marital status, number of children, income, educational level (aggregated and anonymized) to inform social policy design and better understand over-indebtedness. - Formal insolvency regime reporting could be more detailed despite current technological limitations; priority data categories include: - Personal insolvency: number of discharged persons; number of cases per 100,000 inhabitants; refused applications (and causes); cost; duration; outcome; demographics; number of repeat applicants; information on fraudulent cases. - Business restructuring and insolvency: coverage of rehabilitation procedures, going-concern sales, small insolvencies, reported by cost, duration, and outcome. - Modernizing technological infrastructure for insolvency proceedings (e.g., an electronic platform similar to OCW) would increase capacity for high-quality reports and detailed data collection. ### Conclusions and policy implications - Legal and technological efforts in developing restructuring mechanisms are producing solid results and offer attractive opportunities for debt restructuring to both debtors and creditors. - The OCW electronic platform’s detailed information provides a vivid picture of system functioning, debtor financial situations, and restructuring agreement features. - There are opportunities to further increase report quality by incorporating debtor demographics and prioritizing enhanced data collection for the formal insolvency regime. *Source: 1grcea2024001 - 1. Over-indebtedness is still an issue in Greece. Most of the debt of Greek businesses and* ### 15. Data reports communicate to the public the vital role of restructuring mechanisms. ### 15. Data reports communicate to the public the vital role of restructuring mechanisms. ### Role of data reports and communication - Data reports provide useful information to both debtors and creditors about a restructuring mechanism that operates without cost to them and that offers attractive outcomes within a reasonable time. - Dissemination campaigns should draw from information of data reports to incentivize the use of the OCW. ### Fund relations and financial position (as of November 30, 2023) - Membership Status: Joined December 27, 1945. - Exchange Rate Arrangements: The currency of Greece is the euro. The exchange rate arrangement of the euro area is free floating. Greece participates in a currency union (EMU) with 19 other members of the EU and has no separate legal tender. The euro, the common currency floats freely and independently against other currencies. Greece has accepted the obligations of Article VIII, Sections 2, 3, and 4. As of March 31, 2023, it maintains an exchange system free of restrictions on payments and transfers for current international transactions and multiple currency practices, except for those measures adopted solely for security reasons, which have been notified to the Fund in accordance with the procedures of Decision 144 (52/51). - General Resources Account: - Quota: SDR Million 2,428.90; Percent Quota 100.00 - IMF’s Holdings of Currency: SDR Million 1,855.86; Percent Quota 76.41 - Reserve Tranche Position: SDR Million 575.02; Percent Quota 23.67 - SDR Department: - Net Cumulative Allocation: SDR Million 3,110.35; Percent Allocation 100.00 - Holdings: SDR Million 797.45; Percent Allocation 25.64 - Outstanding Purchases and Loans: None - Latest Financial Arrangements: - EFF: Date of Arrangement Mar 15, 2012; Expiration Date Jan 15, 2016; Amount Approved (SDR million) 23,785,30; Amount Drawn (SDR million) 10,224.50 - Stand-by: Date of Arrangement May 09, 2010; Expiration Date Mar 14, 2012; Amount Approved (SDR million) 26,432.90; Amount Drawn (SDR million) 17,541.80 - Projected Payments to the Fund (SDR Million, based on existing use of resources and present holdings of SDRs): - Charges/Interest: 2023 96.67; 2024 96.58; 2025 96.63; 2026 96.63; 2027 (no entry for principal shown) - Total: 2023 96.67; 2024 96.58; 2025 96.63; 2026 96.63 ### Technical assistance (selected items and dates) - FAD Roadmap for IT Strategy Implementation in Tax Administration — January 2018 - FAD Assessment of Tax Administration — February 2018 - STA Government Finance Statistics — February 2018 - FAD Cash Management Legislation and Regulation — June 2018 - FAD Revenue Administration: VAT Gap Analysis (Hutton) — August 2019 - FAD Chart of Accounts and Accounting Reform Strategy (Makaronidis–peripatetic STX) (V) — May 2020–May 2021 - FAD Revenue Administration: Development of IT Capability (Poulin) (V) — December 2020 - FAD Public Financial Management: PIMA — May 2023 - FAD Strengthening Reform Management in the Independent Authority for Public Revenue (Vesperman and Ruuhonen) — December 2023 - FAD Progress Tax Administration Transformation — January–February 2023 - FAD An Assessment of the Independent Authority for Public Revenue using the Tax Administration Diagnostic Assessment Tool (TADAT) — November 2023 ### Statistical issues and data adequacy (as of December 13, 2023) - General: Data provision has some shortcomings but is broadly adequate for surveillance. The quality of Greek statistics has improved since ELSTAT was established in 2010. - Real sector: - Quarterly and annual national accounts compiled in accordance with ESA 2010. - Monthly CPI is chained annually; weights updated every year based on Household Budget Survey (HBS). - PPI for Industry published monthly with sub-indices for domestic and foreign markets. - Services Producer Price Index (SPPI) published quarterly since December 2018. - Fiscal sector: - General government non-financial accounts compiled in accordance with ESA 2010 by ELSTAT and validated by Eurostat. - In 2019, the Bank of Greece (BoG) revised general government financial accounts to resolve quality and consistency issues observed since 2015. - Greece reports high frequency and annual GFS data for general government to STA through the Eurostat GFS convergence project with the IMF. - Trade and balance of payments: - Since January 2015, data provided according to IMF’s sixth edition of the Balance of Payments Manual. Historical data available from January 2002. - Since July 2015, BoG uses ELSTAT’s trade statistics; historical data based on this methodology available from January 2013. - In November 2018, BoG changed compilation of sea transport accounts to use data from international shipping databases and administrative sources. - Monetary and Financial Statistics: - Central bank balance sheet and aggregated ODC balance sheets available from BoG’s website and reported to IMF through the ECB using 1SR and 2SR forms. - Data on other financial corporations (OFCs) is not compiled. - Greece reports some key Financial Access Survey (FAS) series and indicators for SDG Target 8.10. - Financial sector surveillance: - Financial soundness indicators (FSIs) compiled and reported quarterly covering deposit takers, other financial corporations, nonfinancial corporations, and households. - Data Standards: - Greece subscribed to the Fund’s Special Data Dissemination Standard (SDDS) on November 8, 2002. ### Table of Common Indicators Required for Surveillance (as of December 13, 2023) — Date of latest observation and reporting frequency (selected) - Exchange Rates: Date of Latest Observation December 12, 2023; Date Received December 12, 2023; Frequency of Data D; Frequency of Reporting D; Frequency of Publication D - International Reserve Assets and Reserve Liabilities of the Monetary Authorities: Date of Latest Observation October, 2023; Date Received November, 2023; Frequency M; Reporting M; Publication M - Reserve/Base Money: Date of Latest Observation October, 2023; Date Received December, 2023; Frequency M; Reporting M; Publication M - Broad Money: Date of Latest Observation October, 2023; Date Received December, 2023; Frequency M; Reporting M; Publication M - Central Bank Balance Sheet: Date of Latest Observation October, 2023; Date Received December, 2023; Frequency M; Reporting M; Publication M - Consolidated Balance Sheet of the Banking System: Date of Latest Observation September, 2023; Date Received December, 2023; Frequency M; Reporting M; Publication M - Interest Rates: Date of Latest Observation November, 2023; Date Received December, 2023; Frequency M; Reporting M; Publication M - Consumer Price Index: Date of Latest Observation November, 2023; Date Received December, 2023; Frequency M; Reporting M; Publication M - Revenue, Expenditure, Balance and Composition of Financing – General Government: Date of Latest Observation July, 2023; Date Received September, 2023; Frequency M; Reporting M; Publication M - GDP/GNP: Date of Latest Observation 2023Q3; Date Received December, 2023; Frequency Q; Reporting Q; Publication Q - Gross External Debt: Date of Latest Observation 2023Q2; Date Received September, 2023; Frequency Q; Reporting Q; Publication Q - International Investment Position: Date of Latest Observation 2023Q2; Date Received September, 2023; Frequency Q; Reporting Q; Publication Q ### Macroeconomic developments, outlook, and risks (statements and projections) - Recent performance: - Greece largely recouped pandemic-related output and income losses by 2021. - Economy picked up pace in 2022 and is posed to expand by 2.3 percent in 2023, growing significantly faster than the euro area in both years, broadly in line with staff projections. - Up to Q3 2023, real GDP growth positive for 13 consecutive quarters since Q3 2020. - Real GDP growth standing at 2.2 percent in the Jan.-Sep. period of 2023. - Manufacturing PMI in December 2023: 51.3 (above 50 for the 11th consecutive month); euro area indicator 44.4 (below 50 for the 18th consecutive month). - External sector and exports: - Exports of goods and services reached 49% of GDP in 2022 vs 25.5% in 2011. - Non-oil exports of goods nominally: EUR 36 billion in 2022 vs EUR 18 billion in 2015. - Tourism: tourist arrivals and receipts in the 9-month period to September 2023 reached 103 percent and 110 percent respectively of their 2019 pre-pandemic levels. - Current account deficit in the 10-month period to October 2023: EUR 8.7 billion vs. EUR 14.6 billion a year ago. - Staff expectation: current account deficit expected to narrow to 7.1 percent in 2023 from 10.7 percent in 2022. - Investment and construction: - Volume of building permits increased by about 16 percent in the Jan.-Jul. 2023 period, on top of above 40 percent cumulative growth in 2021-2022. - Gross fixed capital formation: grew by 12 percent in 2022; increased by 8 percent in the first half of 2023; projected to grow by another 12 percent in 2024. - Equipment and construction investment expected to surge by almost 5 and 12 percent respectively in 2023. - Growth projections and differences: - Authorities project growth of 2.3 percent and 2.9 percent in 2023 and 2024 respectively, with potential growth rising by the end of this decade to 2 percent. - Staff project growth at 2.3 percent in 2023, decelerating to 2.1 percent in 2024 and returning gradually close to potential growth of 1.3 percent by 2028. - Difference attributed to authorities’ projection of higher investment and productivity growth, and further improvement in the current account. - Labor market and inflation: - Statutory minimum wage increase on April 1, 2023: monthly pay from EUR 713 to EUR 780, an increase of 9.4 percent. - Unemployment rate: fell to 9.4 percent in November 2023 from a 12 percent average in 2022, the lowest reading since April 2009. - Headline and core inflation in December 2023: 3.7 percent and 3.3 percent respectively, down from 9.3 and 5.7 percent average in 2022. - Authorities and staff project inflation in 2023 to reach an average level of about 4 percent, before settling to levels close and below 2 percent in 2024 and 2025 respectively. - Competitiveness: Real Effective Exchange Rate based on Unit Labor Costs improved by about 8.5 percent during 2019-23. - EU recovery funds and NRRP: - Revised Greek NRRP includes 76 structural reforms and 103 investment projects through 2026. - Total envelope of the Greek NRRP, as revised in 2023: EUR 35.95 billion (in 2018 values), of which EUR 18.22 billion are grants and EUR 17.73 billion are loans. - Total EU funds to be received by Greece in forthcoming years: more than EUR 70 billion (in 2018 prices). - Authorities estimate implementation of Greece 2.0 will bring a permanent increase in real GDP of at least 7 percentage points. - Greece ranks first among EU countries in absorbing RRF funds of the NGEU, having received EUR 14,7 billion (EUR 7,5 billion in grants and EUR 7.2 billion in loans), equivalent to 6.6 percentage points of GDP. - Disbursed to the market to date: EUR 5,2 billion in RRF grants and EUR 4 billion in RRF loans. - RRF loans: by end November 2023, a total of 248 loan contracts signed with a total budget of EUR 9.5 billion, of which EUR 4 billion corresponds to the contribution of the RRF loan facility, EUR 3.2 corresponds to funds of the banking system. ### Policy measures and risks highlighted - Headwinds: global uncertainty due to geopolitical developments, monetary tightening responding to pandemic-era inflationary pressures, supply chain disruption, effects on global food and energy prices from the war in Ukraine and the war in Gaza and its aftermath. - Mitigating measures: - In 2023, authorities maintained some temporary and targeted food and energy subsidies aimed at the most vulnerable. - Minimum wage increase (April 1, 2023) to preserve employment and competitiveness while aligning with productivity growth. - Continued implementation of an ambitious reform agenda (Greece 2.0, NRRP) to support investment and productivity. - Recommendation (communication): Dissemination campaigns should use data reports to incentivize use of the OCW and communicate the cost-free, timely, and attractive outcomes of restructuring mechanisms to debtors and creditors. *GREECE STAFF REPORT FOR THE 2023 ARTICLE IV CONSULTATION—INFORMATIONAL ANNEX December 15, 2023* ### 2.3 billion are the private companies’ own funds. The Loan Facility clearly contributes to increased ### 1grcea2024001 - 2.3 billion are the private companies’ own funds. The Loan Facility clearly contributes to increased ### Loan Facility, NGEU investments, and structural reforms - Loan Facility financing supports diversification across sectors: 29% energy/electricity production, 26% tourism, 20% industry, 11% commerce, 12% other services, and 2% telecommunications. - HDBI actively manages EUR 500 million of the loan segment of the NRRP through an equity platform instrument, including venture capital or private equity funds to finance innovative SMEs in rapidly growing sectors of the economy. - Authorities concur that NGEU-supported investments and reforms will be effective in reallocating resources to address structural changes and propel the economy to a higher, more sustainable, and resilient growth trajectory. - New legal framework measures: - Tax incentives for business transformation operations and corporate restructurings to scale up Greek firms, raise productivity, export orientation, and resilience. - Introduction of the digital work card to enable digitalization of employment records and reduce informality practices. - Labor market and social protection measures under the NRRP: - Active labor market policies and occupational training reforms for up-skilling and reskilling. - Deployment of the digital platform “REBRAIN GREECE” to help highly skilled job seekers design individual digital action plans. - Authorities broadly concur with staff on further strengthening the social protection system to be fit for an effective and just green transition and to increase affordability of rising carbon prices for the most vulnerable groups. - FDI inflows: - FDI in 2022 reached EUR 7.9 billion, bringing FDI inflows to EUR 20.6 billion since 2019. - In the 10-month period to October 2023, more than EUR 4 billion. ### Debt sustainability — authorities’ view and staff assessment - Staff assessment: - Risk of near-term sovereign stress: low, given large reduction of debt in 2022, favorable interest-growth (r-g) differential, limited foreign exchange risk, and a EUR 15.7 billion cash buffer dedicated to debt service exigencies. - Total General Government cash reserves: EUR 33.5 billion or about 15 percent of GDP as of end-December 2023. - Medium-term risk of debt distress: moderate; public debt on a downward trajectory, rollover risks manageable. - Staff baseline expectations: public debt levels decline to less than 150 percent of GDP by 2026, and less than 135 percent of GDP by 2032; Gross Financing Needs expected to remain on average below 10 percent of GDP throughout the period. - Authorities’ projections and positions: - Public debt projected to decline to below 150 percent of GDP by 2025 due to faster growth. - Authorities consider public debt sustainable over the medium term, citing favorable r-g differential, favorable debt structure (ultra-long maturities, high share of official holdings at low fixed rates, long grace periods), and proactive debt management via hedging. - Authorities remain committed to maintain sustainable primary surpluses of approximately 2 percent of GDP on average over the medium-term. - Historical and recent fiscal performance: - Pandemic-related fiscal support: 14.5 percentage points of GDP in 2020-21. - End-2021 primary deficit: 4.7 percent of GDP (lower by about 2 percentage points of GDP than budgeted). - 2022 primary surplus: 0.1 percent of GDP (one year earlier than expected). - 2023 primary surplus: 1.1 percent of GDP, amid 2.3 percent growth. - 2024 government projection: primary surplus target of 2.1 percent of GDP. - Market and debt management developments: - In 2023, Greece raised almost EUR 12 billion in the capital markets. - 10-year bond yields dropped from 4.3 percent in January to 3. 3 percent in December. - Greece’s sovereign rating was upgraded to investment grade by multiple rating agencies; markets price Greek sovereign bond risk within the range of the A rating category. - Prepayments and repayments: - 2021 prepayment of EUR 3.4 billion owed to the Fund. - 2022 final payment of EUR 1.8 billion to the Fund using part of SDR allocation proceeds. - 2022 principal repayments of EUR 2.65 billion due in 2023 for GLF loans. - On December 15, 2023, Greece prepaid EUR 5.28 billion in GLF principal due in 2024 and 2025. - EUR 15.7 billion cash buffer could potentially be used for further debt service prepayments now that sovereign rating reached investment grade. - Pension reforms and long-term impacts: - Substantial pension reforms projected to reduce pension expenditure by 3.8 percentage points of GDP between 2019 and 2060 (2021 EU Ageing Report assumption). - New fully funded defined contribution supplementary pension system deployed from 2022 for new entrants; projected to cover 90 percent of insured employees by 2065. - Based on Foundation for Economic and Industrial Research assumptions, public debt could be reduced by 6.3 percentage points of GDP cumulatively by 2070 due to the supplementary pension reform. ### Fiscal policy - Stability Program 2024-26: budgetary process emphasizes gradual fiscal consolidation while allowing for growth-enhancing measures and reprioritizing spending toward health, education, and public investment. - Fiscal stance and outcomes: - Fiscal policy stance in 2022 and 2023 remained appropriately accommodative while unwinding certain supports and implementing sustainable pension increases. - Primary balance improved cumulatively over 2022-2023 by about 3 percentage points of GDP. - Primary balance expected to register a surplus of 2.1 percent of GDP in 2024 despite increased spending from public sector wage grid reform (implying one percentage point of GDP further fiscal consolidation). - Medium- to long-term primary surplus expected to stabilize around 2 percent of GDP. - Revenue mobilization and tax compliance: - VAT compliance gap fell from 29 percent in 2017 to 17.8 percent in 2021 and is expected to decline to below 10 percent by 2026. - Authorities enacted law reforming self-employed taxation to be applied on 2024 incomes and other measures to reduce tax evasion. - Establishment of a one-stop portal for social benefits by end-2024 to better target entitlement programs. - Authorities emphasize digitalization: real-time interconnectivity with firms, improved labor market controls to fight undeclared work, and digital tools for social assistance. - Staff recommendation: - Additional fiscal action to compensate for permanent revenue loss from pandemic-era cuts in the solidarity tax and social security contributions; authorities favor expanding the tax base, primarily via reducing the VAT compliance gap. ### Financial sector issues and NPLs - NPL reduction and HAPS: - Significant Institutions (SI) NPL ratio reduced to 5 percent in 2023, from about double that level in 2022, converging toward the euro area average of 2 percent of outstanding loans. - Hercules Asset Protection Scheme (HAPS) securitization strategy used market-based government guarantees fully complying with EU state-aid rules to transfer NPLs off banks’ balance sheets. - HAPS ended in October 2022 but re-introduced until end 2024 with a budget of an overall notional amount of State guarantees of up to EUR 2 billion to cover outstanding and new applications. - Insolvency and distressed debt frameworks: - Comprehensive insolvency law reform legislated with fully operational online platforms to facilitate private sector distressed debt resolution, household insolvency procedures, and corporate restructuring. - Greece transposed the European Directive on Preventive Restructuring and Insolvency into its new insolvency code. - Distressed debt under recovery in mid-2023 stood at EUR 71 billion, down from EUR 87 billion a year ago. - Priority measures: enhance courts’ institutional capacity, purchases and lease-back program for primary residences of most vulnerable debtors, facilitate enforcement of e-auctions, streamline out-of-court workouts (OCW). - Staff view: OCW platform is powerful, with data gathering quality and quantity exceeding other European restructuring mechanisms. - Credit servicers, borrower protections, and legislative changes: - December 2023 legislation transposed the EU directive on credit servicers and credit purchasers, stipulating transparency requirements and borrower-servicer communication safeguards. - New law increases protection for vulnerable borrowers and makes acceptance of the OCW algorithm-determined restructuring mandatory for both financial institutions and the State. - Law improves OCW restructurings (haircuts, interest rates, parameters), enhances competition by allowing non-bank lending, reintroduces HAPS, and expands instant payments services (IRIS) without additional commission charges. - Banking sector profitability, capital, and prudential measures: - Banks’ returns on equity: 18 percent in 2022 and 13 percent in 2023Q2. - Tier 1 capital adequacy ratios: 14 percent in 2023. - Authorities and staff agree on need to further enhance risk management, adapt business models, raise organic profitability and capital sustainably, and tackle fintech challenges. - Staff and authorities support strengthening macroprudential framework: activate countercyclical capital buffer and borrower-based measures to raise banks’ resilience in face of potential mortgage leverage build-up and rising real estate valuations. *Source: 1grcea2024001* ### 5. Structural reforms ### 5. Structural reforms ### Overall objective - Comprehensive structural reforms are key to maximize the effectiveness of the National Recovery and Resilience Plan, to boost productivity, improve competitiveness, and close the investment gap. ### Business environment and private investment incentives - Findings and measures: - Create a business-friendly environment through simplifying licensing, increasing the ease of doing business, and supporting investment and trade facilitation. - Incentivize private investment through: - cutting corporate tax rates, - facilitating corporate restructurings, - improving access to investment finance, - providing R&D and wider innovation incentives, - modernizing labor relations. ### Labor market participation, inclusiveness, and social policies - Findings and measures: - Increase labor force participation and employment rates (noting they remain below those in peer countries) by: - increasing take-home pay by reducing non-wage costs by lowering social security contributions and abolishing the legacy solidarity levy; - increasing the capacity of the labor market to adapt flexibly to changing conditions and pursuing active labor market policies; - upgrading and extending childcare infrastructure; - up- and reskilling youth, women, older workers and other vulnerable groups, with emphasis on digital and green skills amid signs of skilled labor shortages in certain sectors. - Staff recommendation: - Reducing the marginal income tax of second earners, in combination with improving the availability and affordability of childcare, would help raise female labor force participation. - Foster inclusiveness through: - reinforcing workers’ rights, including issuance of the digital work card; - deploying the Guaranteed Minimum Income scheme to tackle poverty through targeted support; - revamping the unemployment insurance administration into an employment agency to benefit job seekers and reduce unemployment risks; - tackling labor informality and gender inequality. ### Digitalization and public administration - Findings and measures: - Promote digitalization by investing in 5G, fast broadband connections, fiber optic infrastructure in buildings, and submarine fiber cables. - Digitize further public administration operations to offer quality services to businesses and households in areas of health, education, taxes, pensions, building permits, business licensing, vital statistics records, etc. - Justice-related initiatives include document digitization and digital skills training for judges and judicial personnel to simplify court proceedings, reduce court case backlog and speed-up the administration of justice. - Staff assessment: - Greece was among the top countries in raising digitalization in recent years, with an associated pick up in labor productivity, although still lagging EU averages, with more progress needed serving small and medium-sized enterprises. ### Green transition and climate policy - Targets and legislative measures: - Decarbonize the energy sector and invest in a resilient green economy by: - phasing out all lignite plants by 2028; - upgrading energy efficiency of buildings; - improving electric interconnectivity of islands; - investing in energy storage, electric charge points, batteries and electric vehicles; - adopting climate change adaptation and mitigation reforms with a view to raise the share of renewable energy in electricity consumption to 61% and in transport to 19% by 2030, from 29% and 7% respectively in 2018. - Parliament adopted legislation on a climate change roadmap for the gradual reduction of greenhouse gas emissions by at least 55 percent by 2030 and 80 percent by 2040 before achieving zero-net emissions by 2050, compared to 2019 levels, reaffirming the goal of weaning Greece off lignite use in electricity production by 2028, if energy security conditions permit. - Framework measures include promoting electric vehicles, cutting greenhouse gas emissions from buildings, eliminating the use of heavy low-quality oil fuels in electricity production in the Greek islands from 2030, and engaging municipalities to draw local community plans to reduce CO2 emissions by 10 percent by 2025 and 30 percent by 2030. - Buildings: from 2025 prohibition in the sale and installation of boilers using heating oil; from 2030 prohibition in the use of heating oil unless combined at a ratio of 30 percent with renewable liquid fuels (defined as low carbon footprint fuel from biomass, waste, etc.). Also, from 2025 all new buildings near high risk areas from forest fires or floods must be insured before being hooked to the electricity grid. - Vehicles: in Athens and Salonica, from 2026 all newly acquired taxis, and one third of rental cars, should be zero emission vehicles; from 2024 one fourth of all newly acquired company cars for employees should be either electric or hybrid; from 2030 all newly acquired passenger cars and small commercial vans should be zero emission vehicles. - Staff assessment and recommendations: - Greece’s climate change adaptation and mitigation policies, as conditioned by recent natural disasters from extreme weather phenomena, require substantial resources over a long period of time surpassing NGEU funding for climate change. - It may be critical to mobilize green private financing under the NRRP through: - further simplifying procedures and rationalizing spatial planning for strategic green investment; - strengthening incentives for energy efficiency and innovation. - The authorities’ new framework for renewables, by streamlining licensing to facilitate investment and through better integration in an upgraded electricity grid, may prove instrumental in making further progress. *Source: 1grcea2024001 - 5. Structural reforms* --- _Source: https://www.imf.org/-/media/files/publications/cr/2024/english/1grcea2024001.pdf_