Press Release: IMF Executive Board Approves €28 Billion Arrangement Under Extended Fund Facility for Greece
IMF News, March 15, 2012
Source details
- Canonical URL
- Press Release: IMF Executive Board Approves €28 Billion Arrangement Under Extended Fund Facility for Greece
Other formats
Bibliographic details
- Published: March 15, 2012
Executive Board decision and financing
- Approved a four-year SDR 23.8 billion (about €28 billion, or US$36.7 billion) arrangement under the Extended Fund Facility (EFF) for Greece.
- Allows immediate disbursement of SDR 1.4 billion (about €1.65 billion, or US$2.2 billion).
- The EFF arrangement entails exceptional access to IMF resources, amounting to 2,159 percent of Greece’s quota.
- Took note of Greece’s cancellation of the three-year Stand-By Arrangement (SBA) approved in May 2010 (Press Release No. 10/187).
- Official sector support for the second Greek program:
- €130 billion (about US$170 billion) in new financing, plus the remainder of the financing support for the first program of €34 billion (about US$44 billion).
- IMF contribution of €28 billion will be disbursed in equal tranches over a four-year period.
- IMF contribution represents about three-elevenths of the total, excluding payments related to the private sector involvement (PSI) and repayments of bonds held by the European Central Bank.
- This structure will keep the Fund’s peak-exposure broadly unchanged relative to the SBA.
IMF Managing Director statement — program rationale and priorities
- Greece has implemented wide-ranging painful measures during a deep recession; fiscal deficit reduced markedly and competitiveness has gradually improved.
- Key remaining challenges: a large competitiveness gap, a high level of public debt, and an undercapitalized banking system.
- Program focus:
- Restoring competitiveness and growth.
- Achieving fiscal sustainability.
- Ensuring financial stability.
- Preconditions and assurances for program success:
- Successful debt exchange operation, debt relief and long-term support from European partners.
- Commitment of major Greek political parties to program objectives and policies.
- Policy priorities highlighted:
- Competitiveness-enhancing structural reforms, with bold labor market measures, liberalization of professions and product markets, improved business environment, and privatization of state-owned assets.
- Significant further fiscal adjustment to put debt on a sustainable downward trajectory.
- Reaching a primary surplus of 4½ percent of GDP by 2014 will require politically difficult cuts in government spending and measures to address tax evasion.
- Adjustment should be fair and sustainable, including strengthening the core social safety net and tax collection efforts.
- Securing financial sector stability and depositor confidence through liquidity support for banks, funds for recapitalization, incentives to preserve private ownership, and strengthened resolution framework and governance of oversight agencies.
- Risks:
- Risks to the program remain exceptionally high; no room for slippages.
- Full and timely implementation, broad-based public support, and support from European partners are critical.
- Euro area leaders committed to provide adequate support provided Greece fully complies with program requirements and objectives.
Annex — Recent economic developments
- Since 2009 Greece has been unwinding fiscal and external imbalances through deep recession.
- Real GDP declined by more than 13 percent since 2009.
- Private investment led the downturn in 2009; public retrenchment started in 2010. By 2011, private consumption became the main driver of the recession.
- Competitiveness gains not yet evident economy-wide; current account deficit remained close to 10 percent of GDP.
- Productivity growth turned positive only at the end of 2011 as labor market adjustment gathered speed, but unemployment rose rapidly.
- Slow adjustment despite deep recession reflects wage and price rigidities and a small tradables sector.
- Fiscal deficit improved by about 6 ½ percentage points of GDP between 2009 and 2011 despite steep recession.
- Primary deficit in 2011 was 2 ½ percent of GDP, below the long-run debt-stabilizing level of a 1 ½ percent of GDP primary surplus.
- Recession and government debt exposure losses left banks undercapitalized, necessitating higher public support.
Program summary (objectives and main measures)
- Program aims: restore competitiveness and growth, attain fiscal sustainability, and secure financial stability.
- Emphasis on structural reforms to accelerate economic growth and employment.
- Strengthening competitiveness:
- Make the labor market more dynamic to improve competitiveness, strengthen growth and reduce unemployment.
- Reduce rigidities in product and service markets to increase competition and decrease prices.
- Ambitious privatization and steep reductions in bureaucratic barriers to investment to restore investment and growth.
- Improving the fiscal position:
- Program provides room for structural reform impacts in 2012, targeting a primary deficit of 1 percent of GDP in 2012.
- Bulk of fiscal adjustment to take place in 2013-14 to bring primary balance to the new target of 4½ percent of GDP.
- Government will focus on improving tax collection; even with ambitious tax efforts some 5½ percent of GDP in additional spending cuts will be needed.
- Cuts will focus on reducing the size of government and more efficiently targeting social transfers.
- The core safety net will be strengthened to protect the most vulnerable.
- Restoring financial sector stability:
- Significant resources will be channeled to help banks cope with the recession and restructuring of government debt.
- Government support structured to provide incentives to maintain private ownership where feasible.
- Strengthened framework for bank resolution and recapitalization and for financial sector oversight to ensure effective stewardship and oversight.
- Reducing debt levels:
- A combination of private and official sector involvement is expected to deliver enough debt relief to place debt on a trajectory to fall below 120 percent of GDP by 2020 under the program baseline.
Growth expectations and outlook
- Growth in 2012 is expected to be in the range of -4½ to -5 percent, given fiscal adjustment and labor market reforms.
- Recovery expected to begin quarter-over-quarter in 2013, with moderate cyclical developments in 2014-2016.
Greece: Selected economic indicators (highlights)
- Arrangement and IMF metrics:
- SDR 23.8 billion (about €28 billion, or US$36.7 billion) EFF arrangement.
- Immediate disbursement: SDR 1.4 billion (about €1.65 billion, or US$2.2 billion).
- Exceptional access: 2,159 percent of quota.
- IMF quota: SDR 1.1 billion (about €1.3 billion, or US$1.7 billion).
- Key program targets and fiscal figures:
- Target primary deficit for 2012: 1 percent of GDP.
- Target primary surplus by 2014: 4½ percent of GDP.
- Additional spending cuts needed: some 5½ percent of GDP.
- Selected macro series (percentage changes or levels as shown):
- Real GDP: 2010 -3.5; 2011 -6.9; 2012 -4.8; 2013 0.0; 2014 2.5; 2015 3.1; 2016 3.0; 2020 2.2.
- Output gap (percent of pot. output): 2010 2.9; 2011 -2.4; 2012 -6.7; 2013 -4.7; 2014 -2.6; 2015 -0.9.
- Total domestic demand: 2010 -6.0; 2011 -8.9; 2012 -1.4; 2013 1.3; 2014 1.9.
- Private consumption: 2010 -3.6; 2011 -7.2; 2012 -5.7; 2013 -1.1; 2014 0.9; 2015 0.5; 2016 0.4; 2020 0.2.
- Gross fixed capital formation: 2010 -14.5; 2011 -17.0; 2012 -6.6; 2013 5.8; 2014 8.5; 2015 8.0; 2016 5.0.
- Exports of goods and services: 2010 4.2; 2011 3.2; 2012 5.5; 2013 7.0; 2014 7.5; 2015 6.9.
- Imports of goods and services: 2010 -7.0; 2011 -5.1; 2012 2.4; 2013 2.3.
- Unemployment rate (percent) (Based on Labor Force Survey): 2010 12.5; 2011 17.3; 2012 19.4; 2013 18.2; 2014 16.8; 2015 15.6; 2016 11.7.
- Unit labor costs: 2010 -0.4; 2011 -2.8; 2012 -8.6; 2013 -1.6; 2014 -1.9; 2015 -0.7; 2016 1.7.
- Consumer prices (HICP), end of period: 2010 5.1; 2011 0.8; 2012 0.6.
- Consumer prices (HICP), period average: 2010 4.7; 2011 -0.5; 2012 2.0.
- Current account (percent of GDP): 2010 -10.1; 2011 -9.8; 2012 -7.5; 2013 -5.4; 2014 -3.3.
- Export of goods and services (percent of GDP): 2010 20.0; 2011 22.7; 2012 24.8; 2013 25.9; 2014 26.8; 2015 27.7; 2016 28.6; 2020 31.8.
- Gross external debt: 2010 179; 2011 192; 2012 193; 2013 200; 2014 184; 2015 141; 2016 (blank); 2020 126.
- Public finances (general government, percent of GDP):
- Total revenues: 2010 39.5; 2011 41.0; 2012 42.2; 2013 42.1; 2014 40.1.
- Total expenditures: 2010 50.1; 2011 50.3; 2012 49.5; 2013 46.8; 2014 44.2; 2015 41.7; 2016 42.0; 2020 41.3.
- Primary expenditures: 2010 44.6; 2011 43.4; 2012 43.2; 2013 40.4; 2014 37.6; 2015 35.6; 2016 35.8.
- Overall balance: 2010 -10.6; 2011 -9.3; 2012 -7.3; 2013 -4.6; 2014 -2.1; 2015 -1.2.
- Primary balance: 2010 -5.0; 2011 -1.0; 2012 4.3.
- Gross financing needs (pct of GDP): 2010 24; 2011 29; 2012 73; 2013 23; 2014 21; 2015 17; 2016 11; 2020 9.
- Memo: GFN (in billions of Euro): 2010 54; 2011 63; 2012 149; 2013 47; 2014 43; 2015 36; 2016 25.
- Memo: Deposit accumulation (in billions of Euro): …; 2011 7.4; 2012 -2.9.
- Privatization receipts (percent of GDP): 2010 2.1; 2011 2.6.
- Gross debt (in percent of GDP): 2010 145; 2011 165; 2012 163; 2013 167; 2014 161; 2015 153; 2016 117.
Press Release No. 12/85, March 15, 2012.