## 1. Recent Developments—Robust Growth ## Source details **Canonical URL:** [1. Recent Developments—Robust Growth](https://www.imf.org/-/media/files/publications/cr/2025/english/1grcea2025001-print-pdf.pdf) ## Other formats - [Markdown version](/-/media/files/publications/cr/2025/english/1grcea2025001-print-pdf.pdf.md) - [Structured JSON version](/-/media/files/publications/cr/2025/english/1grcea2025001-print-pdf.pdf.json) --- ### Context and macro outcomes - Since 2021, cumulative growth of 20 percent; real GDP per capita at 90 percent of the pre-Global Financial Crisis (GFC) level (up from 73 percent in 2020). - Public debt-to-GDP ratio decreased by more than 55 percentage points since 2021. - About ¾ of public debt is held by official creditors. - Divestment of government stakes in all four systemic banks near completion; banks made first dividend payments since the GFC. - Real GDP expanded by 2.3 percent (y/y) in 2024. ### Structural legacies and challenges - End-2024 public debt estimated at about 150 percent of GDP. - Distressed private debt in the financial system estimated at about 30 percent of GDP. - Persistent structural imbalances: low overall investment, declining working-age population with low labor force participation, sluggish productivity growth, rising climate exposure. - Authorities’ priorities: foster investment- and export-oriented economy, increase competition and labor force participation via NRRP structural reforms, continue prudent fiscal policy, and reduce greenhouse gas emissions by nearly 60 percent by 2030 vs. 1990. ### Labor market - Employment growth: 2.3 percent (y/y) in 2024Q4; shift from part-time to full-time employment. - Unemployment rate: 9.5 percent in 2024Q4 (historic low since 2009); 9.4 percent in December 2024; 8.7 percent in January 2025. - Labor force participation rate: about 76 percent; still among the lowest in EU countries with a larger gap for women. - Vacancy rate rising; labor shortages in construction, tourism-related services, and high-skill sectors. ### Inflation and wages - Headline inflation: 3.0 percent (y/y) in February 2025. - Core inflation: 3.4 percent (y/y) in January 2025. - Minimum wage increased by 6.4 percent on April 1, 2024 (from EUR 780 to EUR 830); proposed rise of 3 to 6 percent from April 1, 2025 under consideration. - Wages Index (hourly labor costs) rose by 4.5 percent in 2024 (6.6 percent in 2023). ### Fiscal outturn and policy stance - Public investment increased by about 1½ percentage points of GDP in 2024 after resumption of delayed NGEU-funded investment. - Temporary social benefits and electricity subsidies: 0.2 percent of GDP. - Government wage grid reform increased public sector wage bill by 0.2 percent of GDP. - Primary surplus estimated at 2.9 percent of GDP in 2024 (up from 2.1 percent in 2023); staff baseline expects 2025 primary surplus at 2.5 percent of GDP and primary surplus at 2.3 percent of GDP in the medium term. - Authorities made early debt repayment of €7.9 billion (about 3 percent of GDP) to the European Institutions in December 2024. - MTFS 2025-2028: net expenditure allowed to rise by about EUR of 3.5 billion annually (up to 3.3 percent), with projected primary surplus averaging 2.4 in 2025-2028 under the MTFS plan. ### Credit and banking sector - Credit to private sector: expanded to 9.4 percent (y/y) in 2024Q4. - New mortgage loans increased by around 20 percent in 2024; net credit growth to households remained negative due to large repayments. - NPL ratio for systemically important banks dropped to around 3 percent in 2024Q3; system-wide tier-1 capital ratio: 17 percent in 2024Q3. - Deferred Tax Credit (DTC) represents 41 percent of prudential capital in 2024Q2; banks plan accelerated DTC amortization targeting DTCs to Tier 1 between 20 to 30 percent by 2027 and zero by the early 2030s. - Liquidity and funding buffers well above prudential requirements and EU average; banks met MREL and repaid TLTRO. ### Real estate - Residential prices rose significantly since 2017 trough and surpassed pre-GFC nominal levels. - Price-to-income and price-to-rent ratios exceed long-term averages by 8 and 34 percent respectively; econometric model suggests an 8 percent overvaluation. - Government measures: ban on new short-term rentals in Athens; tax incentives to convert short-term rentals to long-term and rent unused properties. - Bank of Greece borrower-based measures effective January 2025: DSTI cap at 40 percent and LTV cap at 80 percent, with higher limits for first-time buyers. ### External sector - Current account deficit widened to 6.9 percent of GDP in 2024 (from 6.7 percent in 2023); EUR 16.5 billion in 2024 vs. EUR 15.1 billion in 2023. - External position in 2024 assessed preliminarily as weaker than consistent with medium-term fundamentals and desirable policies. - Exports of goods and services above 42 percent of GDP in 2024 vs. 25.5 percent in 2011. - Tourism in 2024: tourist arrivals 36 million (+9.8 percent yoy) and receipts EUR 21.7 billion (+5.4 percent yoy). --- ### 2. Outlook, Risks, and Macro Projections ### Outlook and assumptions - Real GDP projected: 2.1 percent in 2025; medium-term growth moderates to 1.4 percent as NGEU funding expires and demographic headwinds persist (somewhat offset by expected rise in labor force participation). - Investment assumptions: - Grant-financed public investment completed by 2026; loan-financed projects by 2028. - Total investment-to-GDP ratio projected to rise by an additional 3 percentage points over the medium term but remain below euro area peers. - NGEU loans provide 30–50 percent of project cost; private investors expected to cover at least 20 percent. - Fiscal stance: cyclically adjusted primary balance (excluding NGEU grants) expansionary in 2025–26, contractionary in 2027. - Inflation: headline projected to resume downward trend after winter; core inflation declines more gradually. ### Risks (staff assessment) - Growth risks: balanced. Downside: slowdown in major euro area countries, higher trade barriers, intensification of regional conflicts, commodity price spikes, delays in NGEU execution, delays in structural reforms, adverse climate shocks. Upside: stronger euro area recovery and accelerated reforms. - Inflation risks: tilted upward. Upside drivers include energy price fluctuations, adverse climate shocks affecting food prices, and stronger/persistent wage growth. - Risk management: allow automatic stabilizers to operate; target temporary, well-targeted support to vulnerable groups; accelerate structural reforms; recalibrate macroprudential tools if needed. ### Key projection series (memo macro assumptions) - Real GDP growth (percent): 2.3 (2023), 2.3 (2024), 2.1 (2025), 1.9 (2026), 1.4 (2027), 1.5 (2028), 1.4 (2029–2033). - Inflation (GDP deflator; percent): 5.9 (2023), 3.2 (2024), 2.3 (2025–2026), 2.1 (2027), 1.8 (2028–2029), 2.0 (2030–2033). - Nominal GDP growth (percent): 8.3 (2023), 5.5 (2024), 4.5 (2025), 4.2 (2026), 3.5 (2027–2028), 3.4 (2029–2033). - Effective interest rate (percent): 1.6 (2023), 1.7 (2024), 1.9 (2025), rising to 2.7 by 2032–2033. --- ### 3. Fiscal Policy: Recommendations and Debt Dynamics ### Staff baseline and fiscal projections - Staff baseline: continued fiscal prudence with primary surplus >2 percent of GDP to strengthen debt sustainability. - 2025 primary surplus expected at 2.5 percent of GDP. - Primary surplus projected at 2.3 percent of GDP in the medium term. - Baseline projected to reduce public debt-to-GDP ratio by another 25 percentage points to below 130 percent by 2030. - Public debt-to-GDP ratio (actual and projections): - 2023: 165.2 - 2024: 150.8 - 2025: 142.4 - 2026: 138.2 - 2027: 134.6 - 2028: 130.8 - 2029: 127.1 - 2030: 123.6 - 2031: 120.3 - 2032: 117.4 - 2033: 114.6 ### Additional revenue and expenditure options - Revenue-enhancing reforms: - Broaden digitalization and system integration of the IAPR; reduce informality and VAT gap (VAT gap estimated about 5 percentage points above the EU average). - Broaden tax base by lowering effective tax-free income threshold and calibrating rates revenue-neutrally to enhance progressivity. - Phase out inefficient/regressive tax expenditures (e.g., VAT cuts/exemptions on take-away beverages, art objects, spa services). - Consider raising carbon pricing in non-ETS sectors (transport and some industries) to generate revenue and strengthen climate incentives. - Expenditure measures and efficiency gains: - Enhance public investment implementation: strengthen centralized coordination and procurement, increase digital integration, integrate operation and maintenance into medium-term budgeting, streamline legal framework. - Increase efficiency of social expenditure while protecting health and education; rationalize allocations toward pre-primary and vocational education; incentivize training in science and technology. - Strengthen means-tested Guaranteed Minimum Income (GMI) by expanding coverage, improving targeting, and enhancing job integration. - Ensure support to vulnerable households and viable firms in response to energy shocks is targeted and temporary. - Contain spending pressures by resisting excessive pension and public-sector wage increases; tie pension parameters to demographic trends and indexation formula. ### Debt sustainability assessment - Overall risk of sovereign stress: Moderate. - Mitigating factors: large cash buffer (about 15 percent of GDP), proactive debt management, favorable public debt structure (high share official debt at low fixed rates and ultra-long maturities). - Gross financing needs (percent of GDP): 11.3 (2023), 6.7 (2024), 7.4 (2025–2026), varying thereafter up to 9.4 by 2033. - Debt service (percent of GDP): 13.4 (2023), 9.7 (2024), 10.0 (2025), varying thereafter. --- ### 4. Financial Sector Policies and Recommendations ### Findings - Systemic risk relatively limited with low private sector leverage, but pockets of vulnerability remain. - Household debt servicing costs among the highest in the EU, with accelerating credit growth. - NPL coverage ratio lower than EU average despite improvement; stage 2 loans slightly lower than EU average in 2024Q2. - Distressed debt migrated to non-bank financial sector; distressed debt under recovery about EUR 70 billion in early 2025 (down from EUR 87 billion two years ago). ### Policy recommendations - Supervisors to monitor and manage credit risk: review provisioning policies and collateral valuations; conduct targeted reviews of loan origination practices in real estate and consumer credit. - Ensure banks build sustainable profitability drivers; use supervisory review to ensure dividend payouts account for risks to support capital accumulation. - Accelerate amortization of DTCs (initiative aiming to eliminate DTCs for majority of banks by 2031) to enhance capital quality and reduce bank-sovereign nexus. - Activate and be prepared to recalibrate macroprudential tools: positive neutral CCyB activated; BBMs (LTV and DSTI caps) to prevent excessive mortgage leverage. ### Structural and operational recommendations - Resist excessive dividend payouts in near to medium term; use elevated profits to build capital buffers. - Consider stand-alone DTC conversions for banks unable to utilize existing tools. - Strengthen judicial and insolvency frameworks to facilitate debt restructuring and resolution; consider commercial courts and further digitalization. --- ### 5. Structural Reforms, NGEU Execution, and Green/Digital Transition ### NGEU execution and impacts - Allocated NGEU funds expected fully disbursed by end-2026; execution accelerated since mid-2024. - Grant-financed public investment: fully completed by end-2026; loan-financed projects: by end-2028. - Short-term growth payoff: European Commission estimates cumulative peak impact about 4.5 percent of GDP by 2026 (EU average 1.4 percent). - Long-term objectives: energy security, market competition, tax administration improvement, labor skills upgrade, and innovation. ### Combatting tax evasion — reforms and outcomes - Main measures: interconnecting POS with tax authorities; myDATA platform and electronic invoices; mandatory electronic payments; restrictions on cash in real estate; presumptive minimum taxable income for self-employed; higher fines on cash transactions above €500; digital tax audits. - Outcomes: VAT compliance gap decreased from 21 percent in 2020 to 10.2 percent in 2022; VAT gap almost halved from 25 percent in 2018 to 14 percent in 2022; direct and indirect tax revenues in 2024 projected to be more than 1½ percent of GDP higher than original budget targets. ### Green transition and energy security - Renewable generation: solar and wind capacity almost doubled since 2019 Plan; renewables account for about 50 percent of total electricity generation in 2024; Greece became a net electricity exporter. - Remaining gaps: grid interconnections and storage capacity; price volatility in summer 2024 due to limited interconnectivity, outages, warm weather, low rainfall, and increased demand from Ukraine. - Targets and measures: - Phase out lignite plants by 2028. - Raise renewables share to 80 percent of electricity generation by 2030 (from 49 percent in 2024). - Legislative roadmap: at least 55 percent GHG reduction by 2030 and 80 percent by 2040 vs. 1990; net-zero by 2050. - Sectoral prohibitions and timelines for vehicles, boilers, and island fuel use as specified. - Financing: climate mitigation/adaptation requires resources beyond NGEU; mobilize green private financing and simplify procedures/spatial planning for strategic green investment. ### Digital transition and public administration - Digital investments: 5G, fast broadband, fiber, submarine cables; digitalization across health, education, taxes, pensions, permits, licensing, and justice. - National AI strategy and policy initiatives expected to support innovation and productivity. - Training programs: over 150,000 citizens trained in digital, green, and financial literacy. ### Labor force participation and social policies - Demographics: working-age population declined ~0.7 percent annually over last decade; projected further decline ~1 percent annually until 2030, reducing potential growth by ~½ percentage point. - Policy measures to raise participation: - Expand early childhood care, improve parental leave (especially for fathers), reduce care burden (staff analysis: could increase employment by 3 percent). - Reduce tax wedge, especially for second earners in low-income households with children; channel support via means-tested GMI. - Expand active labor market programs, reskilling, lifelong learning focused on science, technology, and healthcare. - Reform unemployment benefit phasing to incentivize job search. --- ### 6. Annex Summaries: External Sector, Sovereign DSA, and Risk Matrix ### External Sector Assessment (key figures) - NIIP expected to improve to -140 percent of GDP in 2024 (from -145 percent in 2023). - 2024 est. (% GDP): NIIP: 140; Gross Assets: 140; Debt Assets: 114; Gross Liab.: 280; Debt Liab.: 239. - Current account (2024 % GDP): CA: -6.9; Cycl. Adj. CA: -6.6; EBA Norm: -3.8; EBA Gap: -2.8; Staff Gap: -2.8. - REER: ULC-based REER fell 27 percent during 2012–19; as of 2024Q3 ULC-based REER fell 7.5 percent since 2019; CPI-based REER fell 3.2 percent since 2019. IMF staff CA gap implies a REER gap of 6.3 percent (overvaluation) for 2024. ### Sovereign Risk and Debt Sustainability Assessment (key points) - Final assessment: Moderate overall risk of sovereign stress. - Debt stabilization in the baseline: Yes. - Public debt projections (selected): 150.8 (2024), 142.4 (2025), 138.2 (2026), declining to 114.6 by 2033. - Primary deficit/(surplus) (percent of GDP): -3.0 (2024), -2.6 (2025), -2.5 (2026–2030), -2.1 (2032–2033). - Gross financing needs and debt service vary over the projection period (see detailed series in report). ### Risk Assessment Matrix (selected risks and policy responses) - High-probability structural risks: Deepening geo-economic fragmentation (High) and Extreme climate events (High); policy responses include accelerating structural reforms, scaling up green investments, and maintaining contingency buffers. - Conjunctural risks: Intensification of regional conflicts (High) with high impact; policy responses include using automatic stabilizers, targeted temporary support, and expanding ALMPs for refugee integration. - Domestic risks: Weak implementation of NGEU-financed investment (Medium); systemic risk build-up in financial system (Medium); under-execution of planned fiscal consolidation (Medium). Policy responses emphasize strengthening implementation capacity, accelerating bank capital accumulation, and adhering to fiscal targets. *Source: IMF staff report excerpt — "1. Recent Developments—Robust Growth" (chapter content) and associated annexes.* ### 1. Recent Developments—Robust Growth _______________________________________________________ 21 ### 1. Recent Developments—Robust Growth ### Context: Healing process well underway - Since 2021, the economy experienced cumulative growth of 20 percent, with real GDP per capita at 90 percent of the pre-Global Financial Crisis (GFC) level, up from 73 percent in 2020. - Growth drivers: strong investment supported by NGEU funding and FDI, cyclical recovery of tourism demand, and steadfast implementation of structural reforms. - Public debt-to-GDP ratio decreased by more than 55 percentage points since 2021, bolstered by strong growth, high inflation, and substantial fiscal consolidation. - About ¾ of the public debt is held by official creditors. - Divestment of government’s stakes in all four systemic banks is near completion; banks made first dividend payments since the GFC. ### Structural legacies and challenges - At end-2024, public debt estimated at about 150 percent of GDP. - Distressed private debt in the financial system estimated at about 30 percent of GDP. - Persistent structural imbalances: low overall investment, declining working-age population with low labor force participation rates, and sluggish productivity growth. - Increasing exposure to climate change with more frequent extreme weather events. - Authorities’ policy priorities: foster investment- and export-oriented economy, increase competition and labor force participation via NRRP structural reforms, and continue prudent fiscal policy. Authorities set a climate target to reduce greenhouse gas emissions by nearly 60 percent by 2030 compared to the 1990 level. ### Robust expansion in 2024 - Real GDP expanded by 2.3 percent (y/y) in 2024. - Growth drivers in 2024: strong pickup in investment after resumption of NGEU-funded projects, buoyant private consumption (rising real income and higher employment), and tourism flows surpassing pre-pandemic levels. ### Labor market—remaining tight - Employment growth: 2.3 percent (y/y) in 2024Q4, with shift from part-time to full-time employment. - Unemployment rate: 9.5 percent in 2024Q4 (historic low since 2009). - Labor force participation rate: about 76 percent, still among the lowest in EU countries with a higher gap for women. - Vacancy rate rising; labor shortages in construction, tourism-related services, and high-skill sectors. ### Inflation dynamics - Headline inflation: 3.0 percent (y/y) in February 2025, driven by services inflation. - Core inflation: 3.4 percent (y/y) in January 2025, remaining high due to wage inflation in labor-intensive service sectors and a 6.4 percent increase in the minimum wage in April 2024. - Electricity prices: continued rises since last summer due to excessive heat, generation outages, and heightened demand from Ukraine. ### Fiscal—ongoing prudence and 2024 outturn - Public investment estimated to have increased by about 1½ percentage points of GDP in 2024 following resumption of delayed NGEU-funded investment. - Temporary social benefits and electricity subsidies provided to vulnerable households: 0.2 percent of GDP. - Government wage grid reform increased public sector wage bill by 0.2 percent of GDP. - Strong revenue performance offset spending increases: improved tax compliance, higher social security contributions, temporary tax on refineries’ excess profits, and increased EU funding. - Primary surplus estimated at 2.9 percent of GDP in 2024, up from 2.1 percent in 2023. - Authorities made an early debt repayment of €7.9 billion (about 3 percent of GDP) to the European Institutions in December 2024. ### Credit and banking sector developments - Credit to the private sector expanded to 9.4 percent (y/y) in 2024Q4, though nominal volumes remain below pre-GFC period. - New mortgage loans increased by around 20 percent in 2024; net credit growth to households remained negative due to large repayments from the credit boom period. - NPL ratio for systemically important banks dropped to around 3 percent in 2024Q3, aided by a government-sponsored securitization framework; NPLs remain above EU average. - Limited contribution from organic actions (loan write-offs/liquidations) due to insufficient progress in implementing new insolvency law. - System-wide tier-1 capital ratio: 17 percent in 2024Q3; Deferred Tax Credit (DTC) represents 41 percent of prudential capital in 2024Q2. - Liquidity and funding risks reduced; buffers well above prudential requirements and EU average; banks met MREL and repaid TLTRO. ### Real estate sector - Residential real estate prices increased significantly since 2017 trough and surpassed pre-GFC levels in nominal terms. - Structural housing shortages and increases in nonresident real-estate investment contributed to price rise. - Price-to-income and price-to-rent ratios exceed historical long-term averages by 8 and 34 percent, respectively; econometric model suggests an 8 percent overvaluation. - Government measures: ban on new short-term rentals in Athens; tax incentives to convert short-term rentals to long-term and to rent unused properties. - Bank of Greece borrower-based measures effective January 2025: DSTI cap at 40 percent and LTV cap at 80 percent, with higher limits for first-time buyers. ### External sector—still large deficit - Current account deficit widened to 6.9 percent of GDP in 2024 from 6.7 percent in 2023, driven by increased imports of investment-related goods and higher interest payments. - External position in 2024 assessed preliminarily as weaker than consistent with medium-term fundamentals and desirable policies. ### Structural reforms and progress - Significant progress reducing tax evasion (POS machines interconnected with tax authorities), leading to substantial increase in tax revenue. - Abolishment of substantial pension penalties for retirees re-entering labor market estimated to have increased number of working pensioners significantly (penalty of 30 percent replaced with 10 percent levy on labor income). - Renewable generation: solar and wind expanded; renewables account for about 50 percent of total electricity generation; Greece became a net electricity exporter in 2024. - Remaining gaps: interconnected European energy market and storage capacity. ### Outlook: navigating structural headwinds - Real GDP projected to grow 2.1 percent in 2025. - Medium-term GDP growth forecast to moderate to 1.4 percent as NGEU funding expires and demographic headwinds persist, somewhat offset by expected rise in labor force participation. - CA deficit expected to narrow gradually below 4 percent of GDP in the medium term with winding down of NGEU-funded investment. - Key assumptions: - Investment continues as near-term growth driver: grant-financed public investment by 2026 and loan-financed projects (private investment) by 2028. - Total investment-to-GDP ratio projected to rise by an additional 3 percentage points over the medium term but remain below euro area peers. - Private consumption grows robustly supported by employment and income growth. - Fiscal stance (change of cyclically adjusted primary balance excluding NGEU grants) expansionary in 2025-26 before becoming contractionary in 2027. - Headline inflation projected to resume downward trend after winter; core inflation declines more gradually due to persistent services inflation and wage effects. - NGEU loans provide 30–50 percent of project cost; private investors expected to cover at least 20 percent; rest covered by financial institutions channeling the loans. ### Risks - Growth risks: balanced. External downside: slowdown in major euro area countries, higher trade barriers, intensification of regional conflicts, commodity price spikes, delays in NGEU project execution, delays in structural reforms, adverse climate shocks. Upside: stronger-than-expected euro area recovery and accelerated reforms. - Inflation risks: tilted upward. Upsides: fluctuations in energy prices, adverse climate shocks affecting food prices, stronger and persistent wage growth fueling services inflation. ### Fiscal policy: seizing opportunities for sustainable growth - Staff baseline: continued fiscal prudence with primary surplus of more than 2 percent of GDP strengthens debt sustainability. - 2025 primary surplus expected at 2.5 percent of GDP. - Expected revenue losses from additional cut in social security contributions by 1 percentage point and abolition of overhead tax for self-employed to be partly offset by increased revenues from anti-evasion reforms and new climate resilience levy on tourism. - Current primary expenditures projected to decline by about 0.3 percentage points of GDP; public investment to increase by close to 1 percentage point of GDP funded by NGEU. - Primary surplus projected at 2.3 percent of GDP in the medium term. - Public investment peaks in 2026 before declining by about 2½ percentage points of GDP over the medium term with expiration of NGEU funding. - Another cut in social contribution in 2027 by 0.5 percentage point expected to be broadly matched by continued savings in current expenditures. - Baseline projected to reduce public debt-to-GDP ratio by another 25 percentage points to below 130 percent by 2030. - Additional expenditure measures to support fiscal sustainability: - Enhance public investment implementation: strengthen centralized coordination and procurement, increase digital integration of management systems, integrate operation and maintenance into medium-term budgeting, streamline fragmented legal framework and secondary legislation. - Increase efficiency of social expenditure: protect health and education spending while enhancing efficiency; rationalize allocations toward pre-primary and vocational education; incentivize trainings in science and technology; improve health sector staff composition and procurement. - Integrate spending review assessments into annual budgeting. - Strengthen means-tested Guaranteed Minimum Income (GMI) by expanding coverage and targeting and enhancing job integration to raise labor force participation and protect vulnerable households from climate-related disasters. - Ensure any support to vulnerable households and viable firms in response to energy shocks is targeted and temporary while maintaining price signals. - Contain spending pressure by resisting excessive increases in pensions and public-sector wages; ensure pension parameters tied to demographic trends and that pension increases follow indexation formula without ad hoc adjustments. - Further digitalize public services and reduce bureaucratic red tape to improve efficiency without increasing public sector employment. *Source: IMF staff report excerpt — "1. Recent Developments—Robust Growth" (chapter content).* ### 19. There is room for additional revenue-enhancing reforms. Despite recent progress in ### 19. There is room for additional revenue-enhancing reforms. Despite recent progress in ### Revenue-enhancing reforms and tax administration - Findings: - The VAT gap is still estimated to be about 5 percentage points above the EU average. - The Independent Authority for Public Revenue (IAPR)’s new medium-term strategy is an opportunity to broaden digitalization and system integration to modernize tax administration and increase tax collections further. - Policy recommendations: - Continue efforts to enhance revenue collection by addressing tax evasion and promoting tax compliance to reduce informality and level the playing field for formal firms. - Tax policy reforms should focus on broadening the tax base, including by lowering the effective tax-free income tax threshold, while calibrating the rates in a revenue-neutral manner to enhance progressivity. - Phase out inefficient and regressive tax expenditures such as VAT rate cuts and exemptions that mostly benefit the rich (examples noted include take-away beverages, art objects, and spa services). - Consider raising carbon pricing in non-ETS sectors, particularly in the transport and some industries, to generate revenue to improve social protection and to sharpen market incentives for climate change mitigation and energy security. - Rationale: - Improved tax compliance and additional revenue sources would help ensure fiscal space to meet spending needs even under adverse scenarios. ### Fiscal space allocation and public investment - Findings: - Greece’s debt ratio remains high under the baseline. - Large infrastructure investment needs remain, especially for energy security and the green transition, even after expiration of NGEU funding. - Policy recommendations: - Use fiscal space created by additional expenditure or revenue measures for debt reduction as well as crucial social and capital spending to enhance inclusive and green growth. - Support crucial social expenditures such as healthcare and education to foster more inclusive growth. - Authorities’ view (fiscal): - The authorities agreed that continued growth-friendly fiscal consolidation would further strengthen fiscal sustainability while supporting durable income growth. - They viewed that the primary surplus at about 2½ percent while protecting public investment in 2025–28 would strike a balance between further reducing public debt and achieving sustainable growth. - Authorities agreed that excessive increases in public sector wage and pension spending should be avoided. - Continued progress in fighting tax evasion could create fiscal space for more public investment and targeted cuts in the labor tax wedge to raise labor force participation, particularly for women and youth, and increase skilled labor supply. ### Financial sector policy — systemic risks and supervision - Findings: - Systemic risk remains relatively limited with low private sector leverage, but pockets of vulnerabilities persist. - Both corporate and household indebtedness is low compared to the EU average, but debt servicing cost for households in Greece is one of the highest in the EU, with accelerating credit growth. - A model-based analysis suggests that the credit-to-GDP gap remains positive, in line with a positive output gap. - The NPL coverage ratio is lower than the EU average, despite continued improvement in credit quality (stage 2 loans being slightly lower than the EU average in 2024Q2). - Policy recommendations: - Supervisors should ensure close monitoring and robust management of credit risk by banks, including reviewing provisioning policies and collateral valuations. - Conduct targeted reviews of loan origination practices, including assessments of real estate and consumer credit portfolios, to ensure compliance with EBA guidelines. - Ensure banks establish sustainable profitability drivers and use the supervisory review and evaluation process to assure dividend payouts take key risks into account to support bank capital accumulation. - Monitor adaptation of bank business models and strengthen risk management frameworks; high DTCs weaken loss-absorption capacity and the announced initiative to accelerate amortization of DTCs—aiming to eliminate it for the majority of banks by 2031—will enhance resilience and reduce the bank-sovereign nexus. - Macroprudential stance: - Staff welcomes activation of a positive neutral countercyclical capital buffer (CCyB) and borrower-based measures (BBMs) for mortgage loan borrowers. - As combined capital buffers are relatively low compared to other EU countries, authorities should be prepared to recalibrate the CCyB to align with evolving risks. - The BBMs in the form of caps on LTV and DSTI ratios will help prevent excessive mortgage leverage buildup while limiting banks’ exposure to the housing boom. - Authorities’ view (financial): - Authorities highlighted substantial strengthening of financial system resilience and expected accelerated amortization of DTCs to enhance capital quality and reduce the bank-sovereign nexus. - Supervisors envisaged resisting excessive dividend payouts in the near to medium term. - BBMs were activated for signaling purposes and a positive neutral CCyB was adopted to create adequate macroprudential space. ### Structural policy — raising labor force participation - Findings: - The working age population has declined by about 0.7 percent annually over the last decade and is projected to further decline by about 1 percent annually until 2030, which is estimated to reduce potential growth by about ½ percentage point. - The labor force participation rate in Greece is among the lowest in the euro area, with notable participation gaps among youth, women, and the elderly. - Among college graduates, the unemployment rate for women is higher by 4 percentage points than that for men. - Policy recommendations: - Increase access to early childhood care and improve parental leaves, particularly for fathers, to raise women’s participation. - Measures that reduce the care burden can increase employment by 3 percent (staff analysis). - Expand targeted labor market policies such as active labor market programs and reskilling initiatives; upgrade and scale up lifelong learning focusing on science and technology skills and healthcare. - Reduce the high tax wedge, particularly by cutting the marginal effective tax rate for the second earner in low-income households with children; channel tax allowances or childcare support through the means-tested GMI for efficient targeting. - Reform unemployment benefit phasing out within the eligibility period to incentivize job search and increase efficiency. - Supporting data: - In 2023, Greece’s total tax wedge for a one-earner married couple at average earnings with two children was 37 percent, about 6 percentage above the corresponding euro area average. ### Structural policy — improving allocation efficiency and productivity - Findings: - Business dynamism and productivity remain low; TFP in the market economy sector declined relative to its efficient level by around 30 percent between 2009 and 2020, mainly driven by service sectors including construction, professional services and food and accommodation services. - Marginal revenue productivity across firms has widened, implying inefficient resource allocation, particularly in services and among small-sized firms. - The level of overall investment remains low, with a sizable gap with euro area peers. - Service sectors—particularly professional services—continue to face tight regulations, with barriers to entry at the highest and the firm exit ratio being the lowest among European countries. - Policy recommendations: - Accelerate regulatory reforms to foster competition, particularly in services, by reducing regulatory burdens and promoting an open market. - Restructure still large crisis legacy distressed private debt to reallocate resources to firms needing new financing for growth. - Avoid firm size-based tax and regulatory incentives; narrowly target tax incentives to firms’ R&D investments to support young, innovative firms. - Improve quality of regulation by leveraging digitalization and enhancing regulatory impact assessments. - Expansion of the European single market would further benefit Greece’s productivity. ### Addressing crisis legacy debt and judicial reforms - Findings: - Rapid reduction of banks’ NPLs through a state-sponsored securitization framework has been notable, but risks have largely migrated to the non-bank financial sector, where distressed debt of about 30 percent of GDP is under recovery by credit servicers. - There are rigidities in the civil judicial system manifested in a low clearance rate and prolonged disposition times for civil and commercial cases. - Policy recommendations: - Implement the new insolvency framework (since June 2021) to facilitate restructuring of private debt, including out-of-court workouts and pre-insolvency procedures. - Focus judicial reform implementation on timely transfer of non-litigious cases from courts to lawyers, recruitment of additional judicial clerks, training, and increased digitalization. - Consider setting up commercial courts to enable permanent specialization in commercial matters to build expertise for complex rehabilitations and liquidations. - Rationale: - Judicial reforms would accelerate resolution of court cases, help address remaining crisis legacy debt, enhance financial sector resilience, and increase productive growth by freeing up resources and facilitating capital reallocation. ### Green transition and energy security - Findings: - Continued progress in green transition and completion of the EU-wide Energy Union will help achieve energy security. - Improving power connectivity with distant islands and enhancing energy efficiency in industries and transportation are essential for updated climate goals. - Sizable investments beyond already secured NGEU funding will be required. - Policy recommendations: - Attract private investment by strengthening market incentives and secure public investment to scale up solar and wind capacity, grid networks, and storage solutions to ensure stable power supply without large price volatility. - Completion of the EU-wide Energy Union with a fully integrated and interconnected energy market is crucial. *International Monetary Fund — excerpted content unit.* ### 33. The authorities agreed with the structural reform priorities and highlighted significant ### 1grcea2025001-print-pdf - 33. The authorities agreed with the structural reform priorities and highlighted significant ### Structural reform priorities and recent progress - Authorities expect that reforms to ease women’s care responsibilities, including increasing early childhood care facilities and extending parental leaves to the self-employed, would raise female labor force participation over time. - Product market regulation quality has improved, as evidenced by an improved OECD product market regulation index. - Ongoing efforts to simplify business regulations and enhance incentives for mergers and acquisitions are intended to increase business dynamism. - Commitments to improve judicial system efficiency include digitalization and court reorganization, aiming to bring the length of court proceedings (disposition time) to the average EU level by 2027. - Authorities noted substantive progress in green and digital transition and emphasized the criticality of advancing the EU-level energy market integration. - Recent policy initiatives to foster innovation and use of artificial intelligence (AI) are expected to support the digital transition and increase productivity. ### Near-term economic outlook and risks - Real GDP: continued robust expansion driven by public investment, NGEU funding, and steady private consumption. - External position: on a preliminary basis, the external position in 2024 is assessed to be weaker than that consistent with medium-term fundamentals and desirable policies. - Risk assessment: - Risks to the growth outlook are balanced. - Risks to inflation are tilted upward. - Potential downside shocks include slowdown in major euro area countries, higher trade barriers, deterioration of regional conflicts, and higher commodity prices. - Upside from policy: acceleration of ambitious structural reforms could further improve growth prospects and public finances. - Inflation risk: stronger- and more persistent-than-expected wage growth could further fuel services inflation, potentially exacerbated by energy price fluctuations. ### Fiscal policy and public debt sustainability - Policy guidance: continued fiscal prudence would further strengthen public debt sustainability. - Recommendation: maintain primary surpluses above 2 percent of GDP in the medium term to enhance public debt sustainability and build buffers against future shocks. - Fiscal priorities: - Given substantial investment needs—especially for the green transition and energy security—fiscal policy should prioritize public investment. - Resist excessive increases in pensions and public-sector wages. - Make social spending on healthcare and education more efficient and targeted to promote inclusive growth. ### Supply-side reforms to boost productivity and medium-term growth - Key reforms recommended: - Raise labor force participation, particularly among women. - Cultivate a better-skilled workforce. - Reduce regulatory burden and barriers to entry for firms, especially in services sectors, to foster business dynamism and competition. - Strengthen judicial system reforms to address crisis legacy distressed private debt, safeguard financial stability, and enhance productivity. ### Green and digital transition recommendations - Energy: - Scale up solar and wind capacity, grid networks, and storage solutions to contribute to energy security and stable power supply. - Completion of the EU-wide Energy Union remains crucial. - Digital: - Build on digitalization of public administration and the new national AI strategy. - Authorities should incentivize stronger adoption of digital technologies by the private sector to enhance productivity gains. ### Banking sector resilience and macroprudential measures - Strengthening measures: - Enhance capital adequacy and its quality. - Implement the recently adopted comprehensive macroprudential toolkit. - Monitor risks associated with accelerating credit growth and credit exposure more closely. - Calibrate borrower-based measures (BBMs) for mortgages and the countercyclical capital buffer (CCyB) to align with emerging risks. - Capital policy: - Given the necessity to further enhance banks’ resilience, currently elevated bank profits should be primarily utilized to build capital buffers and improve the quality of capital. ### Institutional recommendation - It is recommended that the next Article IV consultation take place on the standard 12–month cycle. *Source: IMF staff appraisal excerpt (page 33).* ### Annex I. External Sector Assessment ### Annex I. External Sector Assessment ### Overall assessment - The external position of Greece is assessed to be weaker in 2024 than the level implied by fundamentals and desirable policies based on preliminary data. - The current account (CA) deficit widened to 6.9 percent of GDP in 2024 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 to bring the external position broadly in line with fundamentals: - Maintain a prudent fiscal policy to sustain a primary surplus and lower the public debt-to-GDP ratio and the large negative NIIP. - Pursue structural reforms to raise potential growth: strengthen labor force participation, rationalize regulations to improve business dynamism, and reduce product market rigidities to increase competition. ### Foreign assets and liabilities: position and trajectory - NIIP trajectory and drivers: - NIIP expected to improve to -140 percent of GDP in 2024, from -145 percent in 2023, despite a wider CA deficit, reflecting asset accumulation (outward direct investment and debt securities) and continued strong nominal GDP growth. - 2024 est. (% GDP): - NIIP: 140 - Gross Assets: 140 - Debt Assets: 114 - Gross Liab.: 280 - Debt Liab.: 239 - Assessment and risk mitigation: - NIIP-to-GDP ratio projected to improve in the medium term with narrowing CA deficits. - Risks mitigated by favorable debt structure: (i) two thirds of external liabilities remain in the official sector; (ii) most liabilities are euro-denominated; (iii) the official part fixed at low rates with ultra-long maturity. - Prudent fiscal policies and active liabilities management are expected to reduce general government external liabilities; residual external financing needs to be covered by private flows as Greece has regained the investment grade sovereign rating. ### Current account - Background and projection: - CA deficit widened to -6.9 percent of GDP in 2024, up from -6.7 percent in 2023, driven by increased imports of investment-related goods and higher interest payments. - CA deficit expected to narrow gradually below 4 percent of GDP in the medium term as imports slow with the winding down of NGEU-funded investment and exports remain resilient. - 2024 (% GDP) key figures: - CA: -6.9 - Cycl. Adj. CA: -6.6 - EBA Norm: -3.8 - EBA Gap: -2.8 - COVID-19 Adj.: 0 - Staff Gap: -2.8 - Assessment: - IMF staff CA gap implies a sizable residual (around -3.3 percent of GDP) for 2024, possibly reflecting product and labor market distortions not captured by the EBA model. - Inflation has eroded the real value of debt benefiting the external position; this inflation compensation is not fully captured in the income balance, potentially overestimating Greece’s CA deficit. ### Real exchange rate (REER) - Historical changes: - The unit-labor-cost (ULC)-based REER fell by 27 percent during 2012–19, aided by macroeconomic adjustment and the 2012 labor market reform. - The CPI-based REER fell by less over the same period. - The pandemic and energy crises did not alter the trend. - As of 2024Q3: - ULC-based REER fell 7.5 percent since 2019. - CPI-based REER fell 3.2 percent since 2019, returning to early 2000s levels. - Assessment: - IMF staff CA gap implies a REER gap of 6.3 percent (overvaluation) for 2024 (applying a semi elasticity of 0.4). - EBA REER index regression estimates the REER gap at 0.1 percent in 2024; EBA REER level regression estimates larger gaps of about 27 percent. - Staff considers EBA REER model results less reliable due to large unexplained residuals and volatility, and favors the EBA CA model assessment as the overall assessment. ### Capital and financial accounts: flows and policy measures - 2024 financing composition and trends: - The 2024 CA deficit was mostly financed by FDI flows (1.8 percent of GDP) and portfolio investment (3.2 percent of GDP). - Inward FDI rose to 2.5 percent of GDP in 2024, up from 1.9 percent in 2023, largely driven by privatization. - In the medium term, FDI expected to decelerate as privatization normalizes, while other FDI inflows are expected to remain stronger than the pre-pandemic period. - Capital account inflow related to EU funds disbursement projected to persist in the medium term. - Assessment: - Rollover risks of public external debt (the largest component of external liabilities) are mitigated by a large government cash buffer, the large share of official loans with ultra-low interest rates and ultra-long maturities. - The cost of external financing contained as Greece is restored to investment grade. - A steady improvement in the business climate, including continued structural reforms, is needed to promote sustainable FDI. ### FX intervention and reserves level - Background and assessment: - The euro has the status of a global reserve currency. - Reserves held by the EA are low relative to standard metrics; the currency is free floating. --- ### Annex II. Sovereign Risk and Debt Sustainability Assessment ### Overall risk of sovereign stress - Final assessment: Moderate overall risk of sovereign stress. - Horizon-specific judgments: - Near term: not published/applicable for disbursing IMF arrangement; for surveillance the near-term assessment is performed but not published. - Medium term: Mechanical signal indicates High; Final assessment Moderate. The fan chart module indicates high risk mainly due to its large width and still high debt, while the GFN module suggests Low risk driven by high primary surplus. - Long term: assessed as n.a. in the mechanical/final columns; public debt-to-GDP ratio projected to continue its decline in the long term with manageable GFNs under several stress scenarios, but uncertainty remains high. - Mitigating factors: - Large cash buffer (about 15 percent of GDP). - Proactive debt management. - Favorable public debt structure: high share of official debt at low fixed rates, ultra-long maturity, long grace periods. - Reformed EU economic governance framework triggers and ECB’s Transmission Protection Instruments (TPI) support. - DSA summary: - Debt stabilization in the baseline: Yes. - Commentary: Overall medium-term sovereign stress risk assessed as moderate. Public debt-to-GDP ratio projected to be on a downward trajectory with manageable rollover risks, reflecting prudent fiscal policy, favorable debt structure, and institutional arrangements. Long-run decline projected but subject to large uncertainty. ### Public debt structure and disclosures - Coverage: Debt coverage is general government and follows ESA 2010; debt data include SDR holdings, NGEU loans, and the stock of deferred interest payments on EFSF loans. - Structure highlights: - Public debt almost entirely denominated in domestic currency (euro) with a high share at low fixed rates and a weighted average maturity of about 19 years. - About three quarters of the debt is held by external official creditors. - With the regained investment grade sovereign rating, the share of marketable debt is expected to increase gradually. ### Baseline debt projections and key fiscal numbers - Public debt-to-GDP ratio (actual and projections): - 2023: 165.2 - 2024: 150.8 - 2025: 142.4 - 2026: 138.2 - 2027: 134.6 - 2028: 130.8 - 2029: 127.1 - 2030: 123.6 - 2031: 120.3 - 2032: 117.4 - 2033: 114.6 - Change in public debt (percent of GDP, selected years): - 2023: -13.3 - 2024: -14.3 - 2025: -8.4 - 2026: -4.2 - 2027: -3.5 - 2028: -3.8 - 2029: -3.7 - 2030: -3.6 - 2031: -3.3 - 2032: -2.9 - 2033: -2.8 - Contribution of identified flows: - Mirrors the change in public debt series above (e.g., -13.0 in 2023; -14.3 in 2024; -8.4 in 2025). - Primary deficit / (surplus) (percent of GDP): - 2023: -2.1 - 2024: -3.0 - 2025: -2.6 - 2026: -2.5 - 2027: -2.5 - 2028: -2.4 - 2029: -2.5 - 2030: -2.5 - 2031: -2.3 - 2032: -2.1 - 2033: -2.1 - Noninterest revenues (percent of GDP): - 2023: 48.2 - 2024: 49.3 - 2025: 49.5 - 2026: 49.3 - 2027: 47.0 - 2028: 46.3 - 2029: 45.9 - 2030: 45.6 - 2031: 45.7 - 2032: 45.8 - 2033: 45.9 - Noninterest expenditures (percent of GDP): - 2023: 46.2 - 2024: 46.2 - 2025: 46.9 - 2026: 46.9 - 2027: 44.5 - 2028: 43.8 - 2029: 43.4 - 2030: 43.1 - 2031: 43.4 - 2032: 43.7 - 2033: 43.8 - Automatic debt dynamics (percent of GDP): - 2023: -11.0 - 2024: -6.0 - 2025: -3.8 - 2026: -2.9 - 2027: -1.6 - 2028: -1.1 - 2029: -0.9 - 2030: -1.1 - 2031: -1.0 - 2032: -0.9 - 2033: -0.8 - Real interest rate and relative inflation (contribution, percent of GDP / percent): - Real interest rate and relative inflation contribution (listed jointly as a series): -7.0 (2023), -2.3 (2024), -0.6 (2025), -0.3 (2026), 0.3 (2027), 0.8 (2028), 0.9 (2029), 0.7 (2030), 0.7 (2031), 0.8 (2032), 0.8 (2033). - Other identified flows / Other transactions (percent of GDP): - 2023: 0.1 - 2024: -5.3 - 2025: -2.1 - 2026: 1.1 - 2027: 0.6 - 2028 onward: 0.0 - Contribution of residual (percent of GDP): - 2023: -0.2 - 2024: 0.0 - 2025: 0.0 - 2026: 0.0 - 2027: -0.3 - 2028: -0.3 - 2029 onward: 0.0 - Gross financing needs (percent of GDP): - 2023: 11.3 - 2024: 6.7 - 2025: 7.4 - 2026: 7.4 - 2027: 4.3 - 2028: 6.0 - 2029: 4.0 - 2030: 5.2 - 2031: 7.0 - 2032: 6.0 - 2033: 9.4 - Of which: debt service (percent of GDP): - 2023: 13.4 - 2024: 9.7 - 2025: 10.0 - 2026: 9.9 - 2027: 6.8 - 2028: 8.4 - 2029: 6.4 - 2030: 7.6 - 2031: 9.2 - 2032: 8.1 - 2033: 11.5 - Local currency debt service mirrors the debt service line above; foreign currency debt service shows 0.0 across the projection period. - Memo macro assumptions: - Real GDP growth (percent): 2.3 (2023), 2.3 (2024), 2.1 (2025), 1.9 (2026), 1.4 (2027), 1.5 (2028), 1.4 (2029), 1.4 (2030), 1.4 (2031), 1.4 (2032), 1.4 (2033). - Inflation (GDP deflator; percent): 5.9 (2023), 3.2 (2024), 2.3 (2025), 2.3 (2026), 2.1 (2027), 1.8 (2028), 1.8 (2029), 2.0 (2030), 2.0 (2031), 2.0 (2032), 2.0 (2033). - Nominal GDP growth (percent): 8.3 (2023), 5.5 (2024), 4.5 (2025), 4.2 (2026), 3.5 (2027), 3.5 (2028), 3.4 (2029), 3.4 (2030), 3.4 (2031), 3.4 (2032), 3.4 (2033). - Effective interest rate (percent): 1.6 (2023), 1.7 (2024), 1.9 (2025), 2.1 (2026), 2.3 (2027), 2.4 (2028), 2.5 (2029), 2.5 (2030), 2.6 (2031), 2.7 (2032), 2.7 (2033). ### Medium- and long-term risk assessments and stress tests - Medium-term risk assessment: - Fan chart module mechanically indicates High risk due to large width and still-high debt; GFN module suggests Low risk driven by high primary surplus and robust growth. - Considering mitigating factors (large cash buffer, proactive debt management, favorable debt structure), the medium-term risk is assessed as Moderate. - Realism of baseline assumptions: - Forecast track record shows some optimistic bias in projections for public debt-to-GDP ratio and interest-growth differential, and a pessimistic bias for the output gap in cross-country comparison. - Projected fiscal adjustment is larger than peers but smaller than Greece’s own maximum historical record. - Sovereign spread expected to decline as investment grade status has been regained. - Long-term stress tests and triggered modules: - Stress tests (including pensions, health, climate mitigation) suggest public debt-to-GDP ratio would continue to decline in the long run even when accounting for higher fiscal costs, though uncertainty is large. - European Commission’s 2024 Ageing Report projects pension spending (share of GDP) would decline in the long term after peaking next decade due to recent pension reforms including a new contributory pension pillar; health spending expected to increase moderately. - Climate change mitigation would incur additional fiscal cost and slow debt reduction, but overall long-run stress tests indicate a declining public debt path with manageable fiscal risks subject to large uncertainty. ### Public guarantees, pensions, and health spending - Public guarantees on a declining path since 2022; financial sector guarantees used to address legacy non-performing loans. Accounting and treatment comply with Eurostat methodologies. - Public pension and health spending (percent of GDP): - Pension spending projected to decline in the long run due to recent pension reforms; pension spending evolves from significantly higher than the EU median to the median level by 2070. - Health spending projected to remain below the EU median level. *Source: IMF staff (Annex I and Annex II: External Sector Assessment and Sovereign Risk and Debt Sustainability Assessment).* ### Annex III. Risk Assessment Matrix ### Annex III. Risk Assessment Matrix ### Conjunctural Risks - Intensification of regional conflicts (High). - Impact if Realized: - High. Negative effects on tourism and exports would impede growth. - Heightened energy and food prices would fuel inflation, imposing a burden especially on vulnerable households. - Increased refugees could raise social tensions. - Policy Responses: - Allow the automatic stabilizers to fully operate. - Provide temporary and targeted support to the most vulnerable groups, while avoiding broad-based discretionary support unless the shock amplifies. - Augment the scope of Active Labor Market Programs (ALMPs) to facilitate refugees’ transitions into the labor market particularly in sectors facing labor shortages. - Global growth surprises - Slowdown (Medium). - Description: Growth slowdown in major economies, including due to supply disruptions, tight monetary policy, rising corporate bankruptcies, or a deeper-than-envisaged real estate sector contraction, with adverse spillovers through trade and financial channels, triggering sudden stops in some EMDEs. - Acceleration (Low). - Description: Positive supply-side surprises, monetary easing, productivity gains from AI, and/or stronger EMDE performance raise global demand and trade, and ease global financing conditions. - Impact if Realized: - Medium. Negative and positive effects through tourism demand and trade linkages and supply chains. - Policy Responses: - Allow the automatic stabilizers to fully operate in both slowdown and acceleration. - Provide temporary and targeted support to the most vulnerable groups, while accelerating supply-side structural reforms to enhance competitiveness and productivity should slowdown materialize. - Monetary policy calibration (Medium). - Impact if Realized: - Medium. Higher funding costs, if combined with deanchored inflation expectations, could push the economy to a stagflation, amplifying the financial strains on both households and firms. - Policy Responses: - Allow the automatic stabilizers to fully operate. - In case of higher inflation, continue fiscal policy consolidation (while protecting the most vulnerable) to reduce domestic demand pressures. - Systemic financial instability (Medium). - Impact if Realized: - Medium. In addition to dampening domestic demand, a sudden house price correction could deteriorate bank balance sheet, further weighing on credit supply. - Policy Responses: - Intensify monitoring of banks’ capital positions and risk management practices to contain systemic risk. - In the event of a sharp downturn, relax macroprudential settings so that banks can keep credit flowing. (Note: The Risk Assessment Matrix (RAM) shows events that could materially alter the baseline path. The relative likelihood is staff’s subjective assessment: “low” indicates a probability below 10 percent, “medium” between 10 and 30 percent, and “high” between 30 and 50 percent. The RAM reflects staff views as of the time of discussions with the authorities. Conjunctural shocks and scenarios highlight risks that may materialize over a shorter horizon (between 12 to 18 months).) ### Structural Risks - Deepening geo-economic fragmentation (High). - Impact if Realized: - High. Extended supply-side disruptions could induce higher commodity prices and will damage tourism and exports, while impacting private and public balance sheets. - Global economic uncertainty could weigh on investment, consumption, and FDI flows. - Inflow of refugees could induce social tensions. - Policy Responses: - Accelerate supply-side structural reforms to enhance competitiveness and productivity, including investments in digitalization and green energy. - Continue to promote international cooperation via active participation in joint efforts to promote green transitions and policy coordination in the euro area and beyond. - Retain contingency buffers. - Extreme climate events (High). - Impact if Realized: - Medium. Damages could undermine tourism, agriculture, and investment, leading to lower growth and higher inflation. - Policy Responses: - Accelerate reforms and investment for greener growth to mitigate severe impact and protect the vulnerable households. - Expeditious implementation of climate policies, including by improving the energy mix, scaling up electricity networks and storage, and raising carbon prices. ### Domestic Risks - Weak implementation of NGEU-financed investment (Medium). - Impact if Realized: - High. Lead to lower investment and productivity growth, and undermine business confidence. - Policy Responses: - Further enhance the government capacity, including by further digitalization and streamlining procedures. - Accelerating labor market reforms to alleviate labor shortages. - Systemic risk build-up in the financial system (Medium). - Impact if Realized: - Medium. Banks’ ability to access liquidity and capital markets would decrease, leading to higher funding costs and credit supply constraints, dampening domestic demand. - Policy Responses: - Accelerate the build-up of bank capital buffers, with limited dividend payouts. - Consider stand-alone DTC conversions for banks that are unable to utilize existing tools. - Prepare to recalibrate macroprudential tools to align with evolving risks. - Under-execution of the planned fiscal consolidation (Medium). - Description: Permanent tax cuts and higher-than-expected spending on energy subsidies, pensions and public sector wages due to social and political pressures. - Impact if Realized: - Medium. Investor confidence could be undermined, leading to higher funding costs and lower growth. - Overheating of the economy could accelerate inflation. - Policy Responses: - Offsetting permanent tax cuts through base-broadening measures and benefit adjustments, while containing pension spending and the public sector wage bill. - Adhere to fiscal targets while scaling up targeted support to vulnerable groups. *Source: Annex III. Risk Assessment Matrix (from the provided IMF content).* ### 2. The allocated funds are expected to be fully disbursed by end-2026. The execution has ### 1grcea2025001-print-pdf - 2. The allocated funds are expected to be fully disbursed by end-2026. The execution has ### Disbursement and project timelines - The allocated funds are expected to be fully disbursed by end-2026. - Execution was somewhat delayed due to administrative requirements and natural disasters in 2023, but the pace accelerated since mid-2024. - Expected completion timing: - Grant-financed public investment: fully completed by end-2026. - Loan-financed projects: fully completed by end-2028. ### Features of NGEU-funded project execution - Steady execution reflects: - Upfront planning. - Centralized coordination via a dedicated operational unit under the Ministry of Economy and Finance. - Close monitoring including monthly monitoring meetings by line ministries and centralized annual planning meetings. - Early-stage identification of productive investment projects was facilitated by large investment needs after prolonged low investment following the sovereign debt crisis. ### NGEU project focus areas and examples of measures - Green transition: - Subsidies for household energy-saving projects. - Enhancing electricity connectivity with islands to reduce reliance on oil-based electricity generation. - Reforms to streamline and digitize the licensing framework for renewables. - Legislation to implement the Guarantees of Origin system to track electricity produced from renewable sources. - Digitalization: - Digitalization of public administration, including tax administration contributing to strong revenue performance. - Use of AI to advance the national land registration. - Digitalization in the judicial system. - Support for introducing digital technologies in SMEs. - Inclusion: - Training programs offered to over 150,000 citizens in digital, green, and financial literacy areas. - Mortgage loan programs implemented to address housing affordability for eligible households. ### Growth payoffs and uncertainty - Short-term impact: - European Commission estimates Greece’s projected cumulative peak impact is about 4.5 percent of GDP by 2026, compared with the EU average of 1.4 percent. - Long-term impact: - Steadfast implementation of investment and structural reforms aimed at: - Ensuring energy security. - Strengthening market competition. - Improving tax administration. - Upgrading labor force skills and enhancing labor participation. - Boosting innovation. - These reforms are expected to deliver a lasting uplift in potential growth. - Risk profile: - Uncertainty regarding the growth payoff is high, presenting both upside and downside risks and underscoring the importance of continuous effective implementation. ### Combatting tax evasion — main reform measures and outcomes (Box 1) - Main reform measures implemented: - Interconnecting Point of Sale machines with the tax authorities. - Utilizing a “myDATA” transaction recording platform and requiring electronic invoices. - Extending mandatory acceptance of direct electronic payments in retail. - Restricting cash payments in real estate transactions. - Establishing a framework for presumptive minimum taxable income for the self-employed based on minimum wage. - Increasing fines for using cash in transactions above €500. - Disbursing social security benefits via prepaid cards with improved tracking. - Digitalizing and automatizing tax authority audits. - Implementing a new framework for combating smuggling and other potential tax-evasion activities. - Outcomes: - VAT compliance gap estimated to have decreased from 21 percent in 2020 to 10.2 percent in 2022. - Direct (e.g., PIT and CIT) and indirect (e.g., VAT) tax revenues in 2024 are projected to be more than 1½ percent of GDP higher than the revenue targets set in the original budget. ### Progress in the green transition and remaining challenges (Annex VII) - Renewable electricity generation: - Solar and wind power capacity almost doubled since adoption of the 2019 National Energy and Climate Plan. - Total renewable sources accounted for around 50 percent of the total electricity supply in 2024. - Greece became a net electricity exporter. - Reduction in coal-fired power generation and overall greenhouse gas (GHG) emissions by 87 and 45 percent, respectively, from pre-GFC peaks. - Authorities have an upgraded target of the reduction in GHG emissions (additional effort needed). - Grid, storage, and price volatility: - Lack of grid interconnections and storage capacity, plus increased regional demand, led to unintended price volatility in summer 2024. - Causes of price spikes included warm weather, low rainfall, outages in electricity generation, and increased demand from Ukraine. - Limited interconnectivity prevented increased power supply from Western Europe. - Renewable generation volatility and limited storage capacity constrained the ability to meet increased demand. - Transport transition lags: - Transportation continues to rely on fossil fuels; GHG emissions from transport have not trended down with growing transport demand. - EVs began gaining market share with about 10 percent of new vehicle sales as of 2023. - Share of energy-inefficient aged and used vehicles remains high. - EU Energy Union: - Completing the EU-wide Energy Union remains crucial. - Greece accelerated bilateral and multilateral energy interconnectivity projects, but deficiencies remain as highlighted by price divergence. - The Budapest Declaration emphasizes building a fully integrated and interconnected EU-wide energy market. ### Key macroeconomic and fiscal context (selected figures and outcomes) - Real GDP growth: - Greece recorded strong real GDP growth of 2.3 percent in 2024. - Authorities project growth to be maintained at around the same level or higher in 2025 and 2026, converging gradually closer to an enhanced potential level of 1.5 percent by 2028. - European Commission forecasts (Autumn 2024): - Greece per capita real GDP growth: 2.6 percent in 2024 vs. 0.4 percent in the euro area. - Greece growth during 2025-26: 2.7 percent vs. euro area 1.2 percent. - External sector and tourism: - Exports of goods and services above 42 percent of GDP in 2024 vs. 25.5 percent in 2011. - Non-oil goods exports roughly doubled to EUR 36 billion in 2022-24 from EUR 18 billion in 2015. - Tourism in 2024: tourist arrivals 36 million (+9.8 percent yoy) and receipts EUR 21.7 billion (+5.4 percent yoy). - Current account deficit: EUR 16.5 billion in 2024 vs. EUR 15.1 billion in 2023; 6.9 percent of GDP in 2024 vs. 6.7 percent in 2023. - Staff forecast: current account deficit expected to decline to 6.6 percent in 2026 and towards 4.0 percent by 2029. - Investment and construction: - Volume of building permits increased by 14.7 percent in Jan.-Nov. 2024, on top of 15.9 percent growth in 2023. - Gross fixed capital formation grew by 4.5 percent in 2024; equipment and construction rose by 5.5 percent and 5.7 percent respectively. - Gross capital formation (including inventories) grew by 23.1 percent in 2024. - Projected growth in 2025: equipment 12.5 percent and construction 4.2 percent. - Labor market and inflation: - Unemployment rate: 9.4 percent in December 2024 and 8.7 percent in January 2025 (from an 11.1 percent average in 2023). - Wages Index (hourly labor costs) rose by 4.5 percent in 2024, compared with 6.6 percent in 2023. - Minimum wage increase on April 1, 2024: from EUR 780 to EUR 830 (increase of 6.4 percent). - Proposed minimum wage rise of 3 to 6 percent from April 1, 2025 (under consideration by social partners and institutional stakeholders). - Harmonized headline and core inflation: 2.9 and 4.4 percent in December 2024 (from 4.2 and 5.3 percent average in 2023); improved to 2,5 and 4.1 percent in February 2025. - Competitiveness: - Real Effective Exchange Rate based on Unit Labor Costs improved by about 11 percent during 2020Q3-2024Q3 relative to trading partners, though weakening slightly in 2024. - Debt and financing: - Staff assessment: near-term risk of stress is low; medium-term risk of debt distress is moderate. - Drivers of debt sustainability: continued large debt reduction, projected high primary surplus, sizeable General Government cash buffer more than 15 percent of GDP, proactive debt management, ultra-long maturities, high share of official debt at low fixed rates, and long grace periods. - Staff baseline projections: - Public debt expected to decline to less than 130 percent of GDP by 2029. - Public debt expected to decline to less than 115 percent of GDP by 2033. - Gross Financing Needs expected to remain on average at 6.3 percent of GDP throughout the period. - Authorities project public debt to decline to below 130 percent of GDP by 2030. - Market issuance in 2024: Greece raised EUR 9.6 billion with a weighted average yield of 3.6 percent and maturity of 16 years. - Issuances in 2025: January 2025 EUR 4 billion 10-year government bonds with yield of 3.64 percent; February 2025 re-opening EUR 250 million at yield of 3.24 percent. - IMF Sovereign Spread Monitor (3/24/2025): weighted average spread 64 basis points vs 85 bps a year ago over German government yields. - Greece currently assigned an investment grade sovereign rating (BBB- or higher) by all rating agencies; Moody’s granted investment grade on March 14, 2025. - Authorities note prior prepayment actions: in 2021 prepayment of EUR 3.4 billion to the Fund; in 2022 settled remaining obligations due by end-2024. *Prepared by IMF staff; content drawn from the specified IMF report chapter.* ### 1.8 billion, using part of the 2021 SDR allocation proceeds. Moreover, in the same year, Greece ### 1grcea2025001-print-pdf - 1.8 billion, using part of the 2021 SDR allocation proceeds. Moreover, in the same year, Greece ### Public debt, GLF repayments, and pensions - Greece proceeded with principal repayments of EUR 2.65 billion due in 2023 of loans granted from euro area countries participating in the Greek Loan Facility (GLF) agreed in May 2010. - In 2023 and 2024, Greece prepaid an additional amount of EUR 5.3 billion in GLF loans due in 2024 and 2025, and EUR 7,9 billion in GLF loans due in 2026-2028, respectively, reducing gross financing needs and rollover risks and improving Greece’s public debt profile. - Long-term sustainability of the pension system is assured due to substantial pension system reforms and fiscal discipline: - Reforms will reduce pension expenditure by 2.5 percentage points of GDP between 2022 and 2070, according to the 2024 EU Ageing Report, with savings assumed to cover debt repayments. - Legislation links retirement thresholds to life expectancy. - A new, fully funded, defined contribution, supplementary pension system introduced in 2022 for new entrants will mature gradually to cover 90 percent of insured employees by 2065, supporting further public debt sustainability. ### Fiscal prudence and Medium-Term Fiscal-Structural Plan (MTFS) 2025-2028 - The MTFS 2025-2028, based on the reformed European economic governance framework (in force April 30, 2024), establishes fiscal rules monitoring multi-annual growth of net expenditure. - Net expenditure is defined as government expenditure net of interest payments, discretionary revenue measures, expenditure on EU programs financed by EU and national sources, cyclical unemployment benefit spending, and one-offs and other temporary measures. - Budgetary plan for 2025-2028 allows for an average annual increase of net expenditure of about EUR of 3.5 billion or up to 3.3 percent (from 3.7 percent in 2025 to 3.0 percent in 2028). - Post-pandemic primary balance trajectory (percent of GDP): - Primary deficit of 4.7 in 2021 - Primary balance of 0 in 2022 - Primary surplus of 2.1 in 2023 - Primary surplus of 3.5 in 2024 (vs. 2.5 in the 2024 Budget and 2.9 preliminary estimate in the Staff Report) - 2.4 average in 2025-2028 as projected under the MTFS Plan - The better-than-expected 2024 outcome driven by: - Additional revenue of EUR 730 million in taxes (measures to fight tax evasion) - EUR 750 million in social security contributions (higher compensation of employees and drop in unemployment) - Expenditure under-execution of EUR 700 million (lower-than-expected social transfers) - Total EUR 2.2 billion adjustment leading to a primary surplus of 3.5 percent of GDP and an overall fiscal balance surplus of 0.2 percent of GDP in 2024. - Major revenue-mobilizing reforms to combat tax evasion include: - Real time interface of POS terminals with cash registers and the tax administration - Application of the myDATA electronic platform introducing electronic invoicing - Extension of mandatory acceptance of direct electronic payments in retail - Exclusive use of electronic payments in real estate transactions - New framework raising the minimum taxable income for the self-employed - Increasing fines when using cash in transactions above EUR 500 - Payment of social safety net benefits via prepaid cards - Digitalization of tax audits and a new framework for combating smuggling - VAT gap progress: - VAT gap almost halved from 25 percent in 2018 to 14 percent in 2022 - Expected to reach average EU levels by 2028 if drive to arrest tax evasion continues - MTFS net expenditure composition (average annual increase of EUR of 3.5 billion): - About EUR 1 billion for operational expenditure (including wage structure adjustments) - Private sector minimum monthly wage expected to be EUR 950 in 2027 (from EUR 830 in 2024) - About EUR 1 billion for increases in pension expenditure (indexed roughly to nominal GDP growth) - About EUR 1 billion for funding new policy measures and increases in public investment - Remainder allocated to rising defense needs - Defense spending and program: - In 2024, Greece spent 3 percent of GDP on defense, or EUR 7.3 billion (NATO definition), of which EUR 2.5 billion in purchases of military equipment (4th highest percentage in NATO ex-USA) - A 12-year Long-Term Defense Armament Program to 2037 of about EUR 25 billion is incorporated in the MTFS plan. - Fiscal projections and EU framework compliance: - Structural primary surplus projected to be adjusted linearly by 0.10 percentage points of GDP each year (from 1.9 percent in 2024 to 2.3 percent in 2028) - Structural deficit projected to decline from -1.5 percent of GDP in 2024 to between -1.1 to -1.3 percentage points of GDP between 2025 and 2028 - Debt-to-GDP ratio projected to decline by a cumulative of more than 20 percentage points of GDP during the same period - MTFS recalibrated to reflect the 2024 primary surplus overage (from 2.4 to 3.5) is expected to generate primary surpluses of at least 2.4 percentage points of GDP throughout the planning period ### Social and public investment priorities - Health sector reforms and investments: - Hiring more than 10000 medical personnel during 2024-2025 - Upgrading and modernizing 80 hospitals and emergency care departments and 156 primary care health centers - Operationalizing the personal primary care doctor system - Reducing waiting time for ordinary surgeries including through evening sessions - Increasing compensation of medical personnel and reforming central procurement - Supporting pharmaceutical R&D and access to new drugs; strengthening mental health programs - Education reforms and investments: - Opening higher education to non-state non-profit academic institutions operating as branches of foreign universities (first to operate from the academic year 2025-2026) - Digitalization, renovating school buildings, comprehensive evaluation of educational process, and strengthening vocational education and training - Reforms to make state universities more outward-looking, efficient through digitalization, and better at managing research funds ### Banking sector recovery and financial stability - NPLs and ratios: - Stock of NPLs declined by about 90 percent from its peak in 2016 - NPL ratio converging towards euro area average level of 2 percent; below 3 percent at-end 2024 for systemic banks (from about double that level in 2022) - Bank performance and capital: - Return on equity: 12.1 percent in 2023 and 14.1 percent in 9M2024 - Tier 1 capital adequacy ratios: 15.6 percent in 2023 and 16.7 percent in 9M2024 - Credit flows in 2024: - New bank corporate term loans around EUR 24 billion (from EUR 17 billion in 2023) - New mortgage and consumer loans rebounded to EUR 3.2 billion (from EUR 2.5 billion in 2023) - Deferred tax credits (DTCs) amortization plan: - Banks plan to speed up amortization starting in 2025, targeting DTCs to Tier 1 capital ratio between 20 to 30 percent by 2027 and then to zero by the early 2030s (earlier than previously planned 2041) - Hellenic Financial Stability Fund divested most holdings of four systemic banks acquired during the sovereign debt crisis. - Hercules Asset Protection Scheme (HAPS): - Supported by EUR 17 billion government guarantees (none triggered so far) - Expected to remain operational until June 2025 - Successful in transferring NPLs to specialized non-bank financial institutions (credit servicers) - Regulatory and judicial reforms to support debt resolution: - Bank of Greece re-licensed all domestic debt servicers; new law transposing EU directive on credit servicers and credit purchasers increases transparency and borrower protections - Judicial reforms aim to modernize courts and reduce average time for final court decision from 1452 days to 637 days - New insolvency law supports private sector distressed debt resolution and corporate restructuring; Greece transposed the Directive on Preventive Restructuring and Insolvency early - Distressed debt and recovery activity: - At early 2025, distressed debt under recovery in servicers’ portfolio about EUR 70 billion (down from EUR 87 billion two years ago), with about EUR 11 billion performing - 2024 e-auctions completed: 12,676 (vs. 9,527 in 2023 and 9,001 in 2022) - OCW platform in 2024 handled 16,903 successful debt restructurings of EUR 5.1 billion (81 percent more than in 2023) - New law increases protection for vulnerable borrowers and makes acceptance of OCW algorithm proposals mandatory for financial institutions and the State - Staff recommendations and authorities’ views: - Continued enhancement of banks’ risk management, business model adaptation, and structural transformation to address digitalization and fintech - Strengthening macroprudential framework by activating the countercyclical capital buffer and borrower-based measures to raise bank resilience ### Structural reforms and investment through Greece 2.0 / NRRP - Greece 2.0 (NRRP) financing and expected impact: - Total NRRP envelope EUR 35.95 billion (in 2018 values): EUR 18.22 billion grants and EUR 17.73 billion loans - Total EU funds to be received by Greece in forthcoming years more than EUR 70 billion (in 2018 prices) - Authorities estimate Greece 2.0 implementation will increase real GDP by about 7 percentage points - European Commission projects cumulative peak impact about 4.5 percent of GDP by 2026 (EU average 1.4 percent) - RRF and other funds disbursement status: - Greece has received to-date EUR 18.2 billion in cash RRF receipts (EUR 8.6 billion in grants and EUR 9.6 billion in loans) - RRF grant disbursements of EUR 4.6 billion support final beneficiaries; EUR 4.3 billion transferred from the state to other entities in the pipeline - RRF loans contracted EUR 7.0 billion (EUR 3.5 billion disbursed) - Bank loans contracted EUR 5.3 billion (EUR 2.3 billion disbursed) - Own funds of EUR 3.7 billion support investments of EUR 16.0 billion - Loan Facility sectoral allocation of contracted projects: - 29% energy/electricity production - 26% tourism - 20% industry - 11% commerce - 12% other services - 2% telecommunications - FDI inflows: - Historic annual high of EUR 7.9 billion in 2022 - FDI inflows EUR 20.6 billion since 2019 - 2023 and 2024 FDI inflows approximately EUR 4.5 billion and EUR 6 billion annually - Structural reform priorities to maximize NRRP effectiveness (authorities concur with staff): - Create a business-friendly environment: simplify licensing, increase ease of doing business, support investment and trade facilitation - Incentivize business transformation, corporate restructurings, R&D investments, and tax reductions on mergers and acquisitions - Reduce corporate taxes and social security contributions to support employment and competitiveness - Implement active labor market policies and vocational training under the NRRP, including apprenticeships, digital job-finding platform, and modernization of employment contracts and labor relations *Source: IMF content unit 1grcea2025001-print-pdf (provided excerpt).* ### introduction of a digital work card has enabled digitalization of employment records and, thus, has ### introduction of a digital work card has enabled digitalization of employment records and, thus, has ### Labor force participation and demographic challenges - Objective: increase labor force participation and employment rates, which are rising but still below those in peer countries. - Measures to increase take-home pay: - Reduce non-wage costs by lowering social security contributions. - Abolish the legacy solidarity levy. - Improve labor market adaptability and activation: - Pursue active labor market policies. - Upgrade and extend childcare infrastructure. - Up- and reskill youth, women, older workers and other vulnerable groups, with emphasis on digital and green skills. - Address emerging skills shortages in certain sectors. ### Family support and fertility measures - Existing measures: birth allowance and increased maternity leave compensation. - Additional reforms: - Further support for families with three or more children. - Tax discounts for benefits and nursery school vouchers provided by employers. - Reduction in the insurance levy for children in private health care contracts. - Complimentary fertility check-ups for women. - Increase capacity of nursery schools to provide enhanced access to more families with children. ### Social protection, inclusiveness, and unemployment policy - Deploy Guaranteed Minimum Income scheme to tackle poverty through targeted support. - Revamp unemployment insurance administration into an employment agency to benefit job seekers and reduce unemployment risks. - Tackle labor informality and gender inequality while reinforcing workers’ rights. - Social protection reforms include: - Harmonizing eligibility criteria. - Improving targeting. - Reducing work disincentives. - Paying increasing attention to families with children to reduce poverty, including child poverty. - Targeting note: compensation amounts to beneficiaries may increase in a fiscally neutral way if targeted criteria are strengthened. - Unemployment benefits under review to increase employment incentives by: - Increasing the correlation of the benefit with the time length of employment. - Scaling the benefit across time, with higher benefits being paid in the beginning of the unemployment period. - A pilot program with these characteristics is already under implementation. ### Housing affordability - Policies to address housing affordability: - Offer low-interest rate loans for first home purchases based on income and demographic criteria. - Increase stock of available housing, including through restrictions on short-term rentals. - Provide tax incentives if transformed to long-renting contracts. ### Digitalization and public administration - Investments planned/underway: - 5G, fast broadband connections, fiber optic infrastructure in buildings, and submarine fiber cables. - Further digitization of public administration across health, education, taxes, pensions, building permits, business licensing, vital statistics records, etc., to offer quality service to businesses and households. - Justice system initiatives: - Document digitization and digital skills training for judges and judicial personnel to simplify court proceedings, reduce court case backlog and speed up administration and delivery of justice. - Staff assessment: Greece was among the top countries in raising digitalization levels in recent years, with an associated pick up in labor productivity, although still lagging EU averages and needing more progress serving small and medium-sized enterprises. ### Green transition and climate policy - Energy and decarbonization goals and measures: - Phase out all lignite plants by 2028. - Upgrade energy efficiency of buildings. - Improve electric inter-connectivity of islands. - Invest in energy storage, electric charge points, batteries and electric vehicles. - Adopt climate change adaptation and mitigation reforms to raise the share of renewable energy (solar and wind) in electricity generation to 80 percent by 2030, from 49 percent in 2024, with Greece being among the leading EU countries. - Legislative climate roadmap targets: - 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 1990 levels. - Greece achieved the biggest (-46 percent actual vs. -23 percent 2030 target since 2005) reduction in emissions between 2005 and 2023 in Europe. - Specific sectoral measures and timelines: - Promote use of electric vehicles (sales of Internal Combustion Engine vehicles prohibited by 2035). - Cut greenhouse gas emission from buildings. - Eliminate use of heavy low-quality oil fuels in electricity production in the Greek islands from 2030. - Engage municipalities to draw local community plans to reduce CO2 emissions by 10 percent by 2025 and 30 percent by 2030. - 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 (biofuels, etc.), defined as low carbon footprint fuel from biomass, waste, etc. - From 2025 all new buildings near geographical areas of high risk from forest fires or floods must be insured before being hooked to the electricity grid. - Vehicles: - From 2026 in Athens and Salonica, 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. - Financing and implementation considerations: - Climate change adaptation and mitigation policies require substantial resources over a long period of time surpassing NGEU funding for climate change. - Mobilize green private financing under the NRRP by further simplifying procedures and rationalizing spatial planning for strategic green investment and strengthening incentives for energy efficiency and innovation. - Authorities’ new framework for renewables aims to streamline licensing to facilitate investment and better integrate projects in an upgraded electricity grid. *Source: IMF staff content from the provided PDF excerpt.* --- _Source: https://www.imf.org/-/media/files/publications/cr/2025/english/1grcea2025001-print-pdf.pdf_