IMF Executive Board Concludes 2019 Article IV Consultation with Greece

IMF News, November 14, 2019

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On November 13, 2019, the Executive Board of the IMF concluded the Article IV consultation with Greece.
Growth has returned but has "so far 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.
Unemployment rate fell to 16.9 percent (seasonally adjusted) in July, but structural unemployment remains high and economic activity is below potential.
Bank balance sheets remain significantly impaired and banks continue to reduce the amount of (net) credit provided to the economy.
Near-term downside risks are significant, including 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 pro-growth reforms translate more quickly into results and markets react favorably to additional progress.

Real GDP growth projections:
- 2019 (proj.): 1.8 percent
- 2020 (proj.): 2.3 percent (supported by fiscal loosening and higher private investment financed mostly by foreign capital inflows)
- Medium term: prospects weighed down by adverse demographics and low productivity
External position: described as weaker than indicated by medium-term fundamentals.
Balance of payments projections:
- Current account (percent of GDP): 2017: -2.4; 2018: -3.5; 2019 (est.): -2.8; 2020 (proj.): -2.9; 2021: -3.2; 2022: -3.3; 2023: -4.0; 2024: -4.2
- FDI (percent of GDP): 2017: -1.5; 2018: -1.6; 2019: -1.7; 2020: -1.8
- External debt (percent of GDP): 2017: 227.2; 2018: 222.4; 2019: 219.3; 2020: 212.7; 2021: 206.3; 2022: 201.6; 2023: 198.6; 2024: 196.5
REER (percent change, CPI-based): 2017: -0.4; 2018: -0.1

Bank balance sheets are "significantly impaired."
Banks continue to reduce net credit to the economy.
Directors welcomed the government's more ambitious nonperforming exposure (NPE) reduction objectives and noted that the proposed state‑supported NPE securitization guarantee scheme could provide important backing.
Directors stressed the need for a 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).
Recommended complementary reforms include improvements in the legal financial framework, specifically an overhaul of the personal insolvency law to eliminate primary mortgage protection to strengthen payment discipline.

Directors emphasized policies to boost productivity and narrow the competitiveness gap.
Welcomed government efforts to unblock privatization, implement business deregulation, and restore elements of program‑era labor market reforms.
Noted that benefits from labor market reform require parallel progress with other structural reforms, particularly further liberalization of product markets.
Urged continued improvements in public sector efficiency and governance:
- Strengthen public revenue administration, including strengthening tax enforcement.
- Enhance efficiency and quality of the judicial system, including enforcement of contracts.
- Speed up anti‑corruption reforms.
Welcomed recent progress in strengthening the AML/CFT regime and anti‑corruption institutions, but underscored important remaining shortcomings.

Directors recognized progress in reform implementation during the program period and the economy’s continued recovery, but noted important challenges remain.
Directors took positive note of the new government’s commitment to growth‑friendly and inclusive policies and welcomed early policy actions.
Key policy recommendations:
- Sustain and deepen reform implementation, deploying a full range of policy tools, and demonstrate strong political resolve to tackle vested interests to boost investment, growth, and social inclusion.
- Cut direct tax rates (supported) while making more ambitious efforts to broaden tax bases and enhance tax payment compliance.
- Shift spending priorities toward more investment and targeted social spending.
- Strengthen fiscal risk management and contingency planning.
- A number of Directors considered building consensus with European partners around a lower primary balance target to support growth objectives; a number of other Directors stressed keeping the agreed target given European fiscal rules and implications for debt sustainability.
- Restore financial sector resilience and ability to support growth through NPE reduction, market‑based mechanisms, and legal framework reforms.

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.
Employment — Unemployment rate (percent): 2017: 21.5; 2018: 19.3; 2019: 17.5; 2020: 15.6; 2021: 14.4; 2022: 13.6; 2023: 12.9
Prices — CPI inflation (period avg., percent): 2017: 1.1; 2018: 0.8; 2019: 0.5; 2020: 0.6; 2021: 1.3
Money and credit:
- Broad money (percent change): 2017: 5.7; 2018: 4.3
- Credit to private sector (percent change): 2017: -5.8; 2018: -7.5
- 3-month T-bill rate (percent): (not provided)

Source: IMF press release, November 14, 2019.