Public Information Notice: IMF Executive Board Concludes 2013 Article IV Consultation, Completes Third Review of the Extended Fund Facility (EFF), and Discusses Ex Post Evaluation of 2010 Stand-By Arrangement (SBA) with Greece
IMF News, June 5, 2013
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- Public Information Notice: IMF Executive Board Concludes 2013 Article IV Consultation, Completes Third Review of the Extended Fund Facility (EFF), and Discusses Ex Post Evaluation of 2010 Stand-By Arrangement (SBA) with Greece
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- Authors: Arrangement Press Release
- Published: June 5, 2013
Background and program context
- Greece entered a deep economic crisis after 2009 following "extraordinary fiscal and external imbalances" that resulted from fiscal expansion after euro accession financed by low-cost external borrowing.
- The government lost access to capital markets in 2010; an ambitious multi-year adjustment program was put in place with support from the European Commission, European Central Bank, and IMF.
- Financing provided:
- 2010 Stand-By Arrangement: 3-year, €110-billion package (May 2010).
- 2012 Extended Fund Facility: €173-billion package (March 2012), of which about €136 billion was financing over and above the undisbursed portion from the first package.
- Policy aims of the program: make the fiscal position sustainable through significant front-loaded consolidation; improve competitiveness through comprehensive structural reforms; safeguard the financial system.
Progress, macroeconomic outcomes, and outlook
- Fiscal consolidation and external adjustment:
- Cyclically-adjusted primary balance improved cumulatively by about 15 percent of GDP during 2010–12.
- Headline primary deficit expected to be eliminated in 2013.
- External current account deficit improved from about 15 percent of GDP in 2008 to 3.4 percent in 2012.
- Labor market and competitiveness:
- Far-reaching labor market reforms in early 2012 contributed to wage corrections and a significant reduction of the competitiveness gap.
- Financial sector:
- Financial stability preserved, including through a large recapitalization of the system.
- Macroeconomic performance and social outcomes:
- Output contracted by 22 percent during 2008–12.
- Unemployment increased to about 27 percent; youth unemployment exceeds 60 percent.
- Debt restructuring and sustainability:
- Private and official creditors were involved in a 2012 restructuring that reduced the debt burden markedly.
- Public debt still stood at 157 percent of GDP at end-2012.
- Commitment by European partners to provide further conditional relief, if needed, to bring projected debt-to-GDP to 124 percent by 2020 and to substantially below 110 percent of GDP by 2022 is described as critical.
- Growth outlook:
- Greece’s recovery expected to be gradual.
- Growth is projected to contract by 4.2 percent in 2013, but to expand by 0.6 percent in 2014.
Executive Board assessment — main findings and policy recommendations
- Commendations and concerns:
- Directors commended authorities for progress in addressing vulnerabilities amid a sharp and socially painful recession.
- Noted exceptional fiscal adjustment, wage adjustment, and safeguarding of financial sector stability.
- Recovery path remains difficult given very high levels of unemployment, public debt, and non-performing loans.
- Fiscal policy and revenue administration:
- Priority: tackle tax evasion by reforming revenue administration to improve collection efficiency and enhance operational independence; consideration could be given to creating an independent tax agency if necessary.
- Authorities encouraged to save any gains from better tax collection, continue to broaden the tax base, and press ahead with public administration reform, particularly targeted staff reduction and replacement of under-performing workers with better qualified staff.
- Structural reforms and competitiveness:
- A critical mass of structural reforms is necessary to raise productivity, lower consumer prices, boost investment, and create employment.
- Encouraged further steps to facilitate price adjustments commensurate with wage declines through liberalization of regulated professions and other product and service markets, and to improve the business environment more broadly.
- Financial sector governance and resolution:
- Welcomed bank recapitalization and resolution but noted banking system largely under state ownership.
- Called on authorities to reinforce governance in the financial sector and, as soon as conditions permit, to re-privatize banks under state control.
- Further efforts needed to repair balance sheets and restore credit growth; Directors looked forward to completion of insolvency and non-performing loan resolution framework reforms.
- Public debt and external support:
- Directors expressed concern that public debt is projected to remain high well into the next decade and concurred macroeconomic risks are on the downside.
- Welcomed assurances from European partners to consider further measures and assistance, if necessary, to reduce debt to substantially below 110 percent of GDP by 2022, conditional on Greece’s full implementation of program commitments.
- Most Directors considered that, should debt sustainability concerns weigh on investor sentiment despite current debt-relief framework and strong program implementation, consideration of a more front-loaded approach to debt relief would be needed.
- Macroeconomic and debt outlook should remain under close review.
- Lessons from the Ex Post Evaluation (EPE) of the 2010 SBA:
- Directors welcomed the candid assessment and agreed it provides a good basis to draw lessons.
- Emphasized importance of adequate financing, strong program ownership, and implementation capacity in program design.
- Noted the finding that the SBA-supported program had made overly optimistic assumptions, including about growth (some Directors viewed this as evident only with hindsight).
- Saw merit in better risk-sharing arrangements within the euro area and noted benefits of timely restructuring with safeguards to contain spillovers and moral hazard.
- Considered scope for tailoring the Fund’s lending policies to monetary unions, including appropriate modalities for collaboration with union-level institutions, while ensuring equal treatment across the Fund’s membership.
Selected economic indicators, 2009–13 (percentage change unless otherwise indicated)
- Real GDP:
- 2009: -3.1
- 2010: -4.9
- 2011: -7.1
- 2012: -6.0
- 2013 Prog./Est./Proj.: -6.4, -4.2
- Output gap (percent of pot. output):
- 2009: 7.3
- 2010: 3.3
- 2011: -2.6
- 2012: -7.3
- 2013 Prog./Est./Proj.: -7.7, -10.6
- Total domestic demand:
- 2009: -5.5
- 2010: -7.0
- 2011: -8.7
- 2012: -10.4
- 2013: -5.6
- Private consumption:
- 2009: -1.6
- 2010: -6.2
- 2011: -9.1
- 2012: -6.9
- Public consumption:
- 2009: 4.9
- 2010: -5.2
- 2011: -4.0
- Gross fixed capital formation:
- 2009: -13.7
- 2010: -15.0
- 2011: -19.6
- 2012: -14.4
- 2013: -19.2
- Change in stocks (contribution):
- 2009: -1.2
- 2010: 0.7
- 2011: -0.4
- 2012: 0.4
- 2013: 0.0
- Foreign balance (contribution):
- 2009: 3.0
- 2010: 2.4
- 2011: 3.7
- 2012: 2.6
- Exports of goods and services:
- 2009: -19.4
- 2010: 5.2
- 2011: 0.3
- 2012: -2.4
- Imports of goods and services:
- 2009: -20.2
- 2010: -11.5
- 2011: -13.8
- Unemployment rate (percent) 1/:
- 2009: 9.4
- 2010: 12.5
- 2011: 17.5
- 2012: 24.4
- 2013 Prog./Est./Proj.: 24.2, 27.0
- Employment 1/:
- 2009: -1.0
- 2010: -2.7
- 2011: -6.6
- 2012: -9.2
- 2013: -8.2
- 2013 Prog./Est./Proj.: -3.7
- Unit labor costs:
- 2009: 4.2
- 2010: -1.1
- 2011: -3.9
- 2012: -8.1
- 2013: -6.1
- 2013 Prog./Est./Proj.: -6.5
- Consumer prices (national definition), period avg.:
- 2009: 1.2
- 2010: 4.7
- 2011: 1.2
- 2012: 1.5
- 2013: -0.8
- Consumer prices (HICP), period average:
- 2009: 1.3
- 2010: 3.1
- 2011: ...
- 2012: 1.0
- Core prices, period average 2/:
- 2009: 2.3
- 2010: 1.1
- 2011: -0.3
- Current account (percent of GDP):
- 2009: -11.2
- 2010: -10.1
- 2011: -9.9
- 2012: -3.4
- Structural current account balance:
- 2009: -8.3
- 2010: -10.9
- 2011: -5.4
- Trade balance:
- 2009: -7.8
- 2010: -6.8
- 2011: -2.5
- 2012: -0.2
- Export of goods and services (percent of GDP):
- 2009: 18.3
- 2010: 20.5
- 2011: 23.4
- 2012: 25.3
- 2013: 25.4
- 2013 Prog./Est./Proj.: 27.4
- Total transfers:
- 2009: -26.2
- 2010: -27.3
- 2011: -29.5
- 2012: -27.8
- 2013: -27.9
- 2013 Prog./Est./Proj.: -27.6
- Net income receipts:
- 2009: 0.6
- 2010: 0.1
- 2011: 1.8
- 2012: (not listed)
- Net international investment position:
- 2009: -86.4
- 2010: -98.4
- 2011: -86.1
- 2012: -94.2
- 2013: -114.1
- 2013 Prog./Est./Proj.: -118.9
- Total revenues (general government, percent of GDP):
- 2009: 38.3
- 2010: 40.6
- 2011: 42.4
- 2012: 43.6
- 2013: 44.1
- 2013 Prog./Est./Proj.: 44.3
- Total expenditures (general government, percent of GDP):
- 2009: 54.0
- 2010: 51.4
- 2011: 52.0
- 2012: 50.3
- 2013: 50.4
- 2013 Prog./Est./Proj.: 48.4
- Primary expenditures:
- 2009: 48.8
- 2010: 45.5
- 2011: 44.8
- 2012: 45.1
- 2013: 45.4
- Overall balance:
- 2009: -15.6
- 2010: -10.8
- 2011: -9.6
- 2012: -6.7
- 2013: -6.3
- Primary balance:
- 2009: -10.5
- 2010: -1.5
- 2011: -1.3
- Cyclically-adjusted primary balance:
- 2009: -13.0
- 2010: 2.2
- 2011: 5.0
- Gross debt (percent of GDP):
- 2009: 130
- 2010: 148
- 2011: 170
- 2012: 158
- 2013: 157
- 2013 Prog./Est./Proj.: 176
- Lending interest rate (percent) 3/:
- 2009: 5.1
- 2010: 6.1
- 2011: 6.8
- 2012: 5.8
- 2013: 6.4
- Private credit growth (percent change) 4/:
- 2009: -7.2
- Nominal GDP (billions of euros):
- 2009: 231
- 2010: 222
- 2011: 209
- 2012: 195
- 2013: 194
- 2013 Prog./Est./Proj.: 183
- Nominal GDP (percent change):
- 2009: -0.9
- 2010: -5.3
(Note footnotes in source: 1/ Based on Labor Force Survey. 2/ Core prices exclude energy, food, alcohol, and tobacco. 3/ Data for 2013 as of March. 4/ Includes securitized or otherwise transferred loans from 2010 onward.)
Public Information Notice No. 13/64, June 5, 2013.