Press Release: IMF Executive Board Approves €30 Billion Stand-By Arrangement for Greece

IMF News, May 9, 2010

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The Executive Board approved a three-year SDR 26.4 billion (€30 billion) Stand-By Arrangement for Greece.
The program is front-loaded, making SDR 4.8 billion (about €5.5 billion) immediately available to Greece from the IMF as part of joint financing with the European Union, for a combined €20.0 billion in immediate financial support.
In 2010, total IMF financing will amount to about €10 billion and will be partnered with about €30.0 billion committed by the EU.
The cooperative package of financing with the European Union amounts to €110 billion (about US$145 billion) over three years.
The arrangement entails exceptional access to IMF resources, amounting to more than 3,200 percent of Greece’s quota, and was approved under the Fund's fast-track Emergency Financing Mechanism procedures.

The program rests on three key pillars:
- Restoring fiscal sustainability and confidence.
- Restoring external competitiveness.
- Safeguarding financial sector stability.
The authorities’ program is multi-year, emphasizing substantial up-front fiscal correction and structural reforms to make the economy more competitive and restore growth and jobs over time.
The adjustment is designed with fairness in mind: the burden is to be shared across society with protection for the most vulnerable and higher burdens on the relatively affluent.

The fiscal consolidation strategy aims to lower the deficit to well below 3 percent of GDP by 2014.
The authorities have designed a large package of fiscal measures of 11 percent of GDP to achieve this target; the measures are heavily frontloaded and fully identified.
Measures include rationalizing the public sector and moderating public wages and pensions.
From the projections table (selected public finance figures, percent of GDP):
- Total revenues: 36.9 (2009), 40.0 (2010), 39.0 (2011), 38.5 (2012), 38.2 (2013), 37.2 (2014), 36.3 (2015).
- Total expenditures: 50.4 (2009), 50.5 (2010), 53.2 (2011), 53.9 (2012), 54.0 (2013), 52.3 (2014), 50.6 (2015).
- Measures (cum.) 2/: … (2009), 6.7 (2010), 9.0 (2011), 11.0 (2012), 12.6 (2013), 12.2 (2014).
- Overall balance: -13.6 (2009), -8.1 (2010), -7.6 (2011), -6.5 (2012), -4.8 (2013).
- Primary balance: -8.6 (2009), -0.9 (2010), 3.1 (2011).
- Gross debt: 115 (2009), 133 (2010), 145 (2011), 149 (2012), 146 (2013), 140 (2014).

The program includes nominal wage and benefit cuts and structural reforms to reduce costs and improve price competitiveness, supporting a transition to a more investment- and export-led growth model.
Reforms aim to increase labor market flexibility, improve domestic competition, and streamline public administration.
The program envisages improved transparency and a reduced role of the state in the economy.

A Financial Stability Fund (FSF) will be established to expand the safety net for solvency pressures and ensure banks remain adequately capitalized during the downturn.
The European Central Bank’s decision to extend Greek bond eligibility for repurchase transactions should help improve bank liquidity.
Existing government banking liquidity support facilities will be extended to mitigate liquidity pressures stemming from sovereign downgrades.
Banking supervision and legal frameworks will be strengthened.

Short-run output is expected to contract in 2010–2011 due to the frontloaded fiscal adjustment; recovery is expected from 2012 onward as market confidence returns and structural reforms take effect.
Considerable downside risks remain; the main challenge is rigorous implementation of the program while securing public consensus for reforms.
The misreporting of Greece’s 2008 fiscal and public debt data led to a breach of obligations under Article VIII, Section 5 of the Fund’s Articles of Agreement. The authorities have taken remedial measures to address data deficiencies and committed to additional corrective actions in consultation with the Fund, EU partners, and Eurostat. No further action is required by the Fund under its procedures for the breach of obligations. Going forward, strict compliance with reporting requirements to the Fund will be required.

Press Release No. 10/187, May 9, 2010 — International Monetary Fund