Statement by the EC, ECB, and IMF on the First Review Mission to Greece

IMF News, August 5, 2010

Source details

Canonical URL: Statement by the EC, ECB, and IMF on the First Review Mission to Greece

Staff teams from the European Commission (EC), the European Central Bank (ECB), and the International Monetary Fund (IMF) visited Athens during July 26-August 5 for the first quarterly review of the Greek government’s economic program.
The program is supported by a EUR 80 billion loan from Euro area countries and a EUR 30 billion Stand-By Arrangement with the Fund.
The strategy and key policies remain as described in the May 2010 Letter of Intent and Memorandum of Economic and Financial Policies (see Country Report No. 10/111).

Overall assessment: the program has made a strong start; end-June quantitative performance criteria have all been met.
GDP: expected to decline by 4 percent in 2010 and some 2½ percent in 2011.
Inflation: revised estimate for 2010 is 4¾ percent, pushed up by indirect tax increases; with no signs of second-round effects, inflation is expected to decline rapidly.
Market access: the Greek government is still unable to access international capital markets except for placement of short-term T-bills; market sentiments appear now to be improving.

Fiscal execution: authorities have kept spending significantly below budget limits at the state level, offsetting slippages at sub-national level (local governments, hospitals, social security funds); the overall deficit target for end-June was met.
Key fiscal challenges and recommendations:
- Tighten expenditure control and monitoring, in particular at sub-national levels.
- Further strengthen tax administration, including to reduce tax evasion by high-income and wealthy individuals, to secure tax revenues and promote fairness of the adjustment program.
- Implementation of recent tax reform and budget reform is key to consolidate fiscal consolidation.

Capital adequacy: moderate deterioration as nonperforming loans have increased in line with expectations.
CEBS stress tests covered more than 90 percent of Greek banking system assets; all but one state-owned bank passed.
Government actions: commissioned a strategic review for the banking sector and a due diligence for state banks.
Financial Stability Fund (FSF): soon to become operational; 10 billion euro earmarked under the program remains adequate to provide a backstop for potential capital shortfalls.
Recommendation: continued close monitoring of the financial sector will be important.

Progress: impressive progress on structural reforms; Parliament approved landmark pension reform described as far-reaching by international standards; substantive labor market reform is well underway.
Early implementation priorities: transportation (including liberalization of road haulage), energy.
Remaining challenges: restoring competitiveness and boosting potential growth; overcoming resistance from entrenched vested interests to:
- opening-up of closed professions,
- deregulation,
- implementation of the services directive,
- elimination of barriers to development of tourism and retail.
Implementation emphasis: establishing a strong track record of policy implementation to regain access to international capital markets.

Staff-level agreement paves the way for conclusion of the first review under the loan facility agreement (euro area) and Stand-By Arrangement (IMF), subject to approval by the Commission, the Eurogroup, and the IMF’s management and Executive Board.
Approval will allow the disbursement of EUR 9 billion (EUR 6.5 billion by the euro area Member States, and EUR 2.5 billion by the IMF).
The mission for the next program review is scheduled for October, 2010.

Statement by the EC, ECB, and IMF on the First Review Mission to Greece — August 5, 2010