IMF Executive Board Concludes 2019 Article IV Consultation with Greece

November 14, 2019

On November 13, 2019, the Executive Board of the International Monetary Fund (IMF) concluded the Article IV consultation [1] with Greece.

Growth has returned to Greece but so far has fallen below expectations. After a 1.9 percent expansion in 2018, growth moderated in the first half of 2019, constrained by lackluster private investment and under-execution of public investment. While the unemployment rate fell to 16.9 percent (seasonally adjusted) in July, structural unemployment remains high, and economic activity is below potential. Despite improvements, bank balance sheets are significantly impaired, and banks continue to reduce the amount of (net) credit provided to the economy.

Real GDP growth is projected to moderate slightly to 1.8 percent this year, followed by some acceleration in 2020 to 2.3 percent, supported by fiscal loosening and higher private investment financed mostly by foreign capital inflows. Over the medium term, growth prospects are weighed down by adverse demographics and low productivity. The external position is weaker than indicated by medium-term fundamentals. Near-term downside risks are significant, including from rising protectionism and weaker global growth, roadblocks to economic reforms, and further deterioration of bank balance sheets; the medium-term outlook is more balanced, particularly if the government’s pro-growth reforms translate more quickly into results and markets react favorably to the additional progress.

Executive Board Assessment [2]

Executive Directors recognized the progress that the authorities had made in implementing reforms during the program period, as well as the Greek economy’s continued recovery, but noted that important challenges remain. In this context, they took positive note of the new government’s commitment to pursue growth-friendly and inclusive policies and welcomed their early policy actions. They stressed, however, that sustained and deeper reform implementation, deploying a full range of policy tools, and strong political resolve to tackle vested interests will be necessary to meaningfully boost investment, growth, and social inclusion.

Directors supported the authorities’ plans to cut direct tax rates and urged more ambitious efforts to broaden tax bases and enhance tax payment compliance. They urged a shift of spending priorities toward more investment and targeted social spending, while strengthening fiscal risk management and contingency planning. A number of Directors considered that the authorities should build a consensus with European partners around a lower primary balance target to support the growth objectives. A number of other Directors, however, stressed keeping the target, which they noted was agreed taking into account European fiscal rules and the implications for Greece’s debt sustainability.

Directors emphasized the importance of restoring the financial sector’s resilience and ability to support growth. In this regard, they welcomed the government’s more ambitious nonperforming exposure (NPE) reduction objectives, noting that the proposed state‑supported NPE securitization guarantee scheme could provide important backing. However, Directors stressed the importance of taking a more comprehensive, ambitious, and well‑coordinated strategy to clean up bank balance sheets, relying on market‑based mechanisms (with any public support subject to cost‑effectiveness assessments). These efforts should also include further improvements in the legal financial framework, including, in particular, an overhaul of the personal insolvency law to eliminate primary mortgage protection in order to strengthen payment discipline.

Directors underscored that Greece’s success within the currency union will require policies to help boost productivity and narrow its competitiveness gap. In this context, they welcomed the government’s efforts to unblock privatization, implement business deregulation, and restore elements of the cornerstone program‑era labor market reforms. Directors stressed that realization of benefits from labor market reform would require meaningful parallel progress with other structural reforms, particularly further liberalization of product markets.

Directors noted the importance of continued improvements in public sector efficiency and governance. They welcomed the recent progress in strengthening the AML/CFT regime and anti‑corruption institutions but underscored that important remaining shortcomings should be addressed. Specifically, they urged the authorities to strengthen public revenue administration (including strengthening tax enforcement), enhance the efficiency and quality of the judicial system (including enforcement of contracts), and speed up anti‑corruption reforms.

Greece: Selected Economic Indicators

Population (millions of people)

10.7

Per capita GDP (€'000)

17.2

IMF quota (millions of SDRs)

2,428.9

Literacy rate (percent)

97.1

(Percent of total)

0.51

Poverty rate (percent)

31.8

Main products and exports: tourism services; shipping services; food and beverages; industrial products; petroleum and chemical products.

Key export markets: EU (Italy, Germany, Bulgaria, Cyprus, UK), Turkey, US.

2017

2018

2019

2020

2021

2022

2023

2024

(est.)

(proj.)

Output

Real GDP growth (percent)

1.5

1.9

1.8

2.3

2.0

1.4

0.9

0.9

Employment

Unemployment rate (percent)

21.5

19.3

17.5

15.6

14.4

13.6

12.9

12.9

Prices

CPI inflation (period avg., percent)

1.1

0.8

0.5

0.6

1.3

1.4

1.8

1.8

General government finances (percent of GDP) 1/

Revenue

48.4

47.8

47.7

46.8

45.8

45.3

44.9

44.4

Expenditure

47.4

46.9

47.6

47.3

46.6

46.2

46.1

45.6

Overall balance

1.0

0.9

0.1

-0.5

-0.8

-0.9

-1.2

-1.3

Overall balance (excl. program adjustors)

0.7

1.0

…

…

…

…

…

…

Primary balance

4.1

4.2

3.7

3.1

2.7

2.6

2.4

2.2

Public debt

179.3

184.9

176.5

171.4

166.3

161.0

155.6

152.0

Money and credit

Broad money (percent change)

5.7

4.3

…

…

…

…

…

…

Credit to private sector (percent change)

-5.8

-7.5

…

…

…

…

…

…

3-month T-bill rate (percent)

2.3

1.1

…

…

…

…

…

…

Balance of payments

Current account (percent of GDP)

-2.4

-3.5

-2.8

-2.9

-3.2

-3.3

-4.0

-4.2

FDI (percent of GDP)

-1.5

-1.6

-1.7

-1.8

-1.3

-1.2

-1.2

-1.2

External debt (percent of GDP)

227.2

222.4

219.3

212.7

206.3

201.6

198.6

196.5

Exchange rate

REER (percent change) 2/

0.6

0.6

-1.5

-0.9

-0.4

-0.4

-0.1

-0.1

Sources: ELSTAT; Ministry of Finance; Bank of Greece; World Bank, World Development Indicators; IMF, International Finance Statistics; IMF, Direction of Trade Statistics; and IMF staff projections.

1/ Based on the primary balance definition outlined in the EU enhanced surveillance framework with Greece.
2/ CPI-based.


[1] Under Article IV of the IMF's Articles of Agreement, the IMF holds bilateral discussions with members, usually every year. A staff team visits the country, collects economic and financial information, and discusses with officials the country's economic developments and policies. On return to headquarters, the staff prepares a report, which forms the basis for discussion by the Executive Board.

[2] At the conclusion of the discussion, the Managing Director, as Chairman of the Board, summarizes the views of Executive Directors, and this summary is transmitted to the country's authorities. An explanation of any qualifiers used in summings up can be found here: http://www.imf.org/external/np/sec/misc/qualifiers.htm .

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