IMF Executive Board Concludes Second Post-Program Monitoring Discussions with Greece
IMF News, November 30, 2020
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- Published: November 30, 2020
Pandemic impact and near-term outlook
- On November 20, 2020, the Executive Board of the International Monetary Fund (IMF) concluded the Second Post-Program Monitoring Discussions with Greece.
- The pandemic interrupted a modest recovery; early implementation of travel restrictions, a ban on public events, and other social distancing measures helped contain the initial outbreak.
- GDP contracted by 7.9 percent in 2020H1, moderately better than the Euro Area weighted average (-9 percent); a further hit is expected in Q3, the peak of Greece’s tourism season.
- Overall, the economy is expected to contract sharply in 2020, before gradually recovering over the medium term, supported by:
- a recovery in private consumption;
- investment linked to privatization and the first tranches of Next Generation EU (NGEU) grants;
- higher goods exports.
Executive Board assessment and policy guidance
- Directors welcomed the authorities’ policy response to the pandemic as swift, sizable, and appropriately targeted at hard-hit households and businesses.
- Noting substantial uncertainties and downside risks, Directors urged the authorities not to withdraw policy support prematurely.
- Directors recommended:
- maintaining targeted fiscal accommodation and making good use of fiscal space in the near term while safeguarding medium-term sustainability;
- frontloading fiscal support next year ahead of Next Generation EU (NGEU) grant disbursements and ensuring effective use of these resources;
- prioritizing health care spending, better targeting social support, and enhancing public investment execution;
- relying progressively on viability assessments as the basis for targeting fiscal support to firms, debtors, and workers.
Debt sustainability and risks
- Greece's public debt remains sustainable over the medium-term with the pandemic-induced rise in debt vulnerabilities largely mitigated by a sizable cash buffer and NGEU funds, resulting in an adequate repayment capacity.
- Staff will reexamine its long-run debt sustainability assessment during the next Article IV Consultation, envisaged to take place in the first half of 2021.
- Main risks highlighted:
- a prolonged pandemic that would derail the anticipated rebound in tourism;
- a significant deterioration of bank balance sheets.
- Directors noted that medium-term public debt repayment capacity remains adequate but could be impacted if severe downside risks materialize.
- Directors emphasized that fiscal prudence, growth-friendly reforms, and continued regional support are essential for long-term debt sustainability.
Banking sector, insolvency, and non-performing loans
- Directors agreed that pandemic cushioning measures for banks should be gradually replaced by more tailored solutions to debtors in distress.
- Recommended actions for the financial sector:
- adopt a comprehensive approach to addressing long-standing weaknesses in banks;
- conduct a cost-benefit analysis of the asset management company under consideration to tackle non-performing loans;
- ensure effective implementation of the new insolvency code to facilitate debt restructuring while minimizing moral hazard.
Structural reforms and labor market
- Directors commended the authorities for advancing structural reforms despite the pandemic.
- Noted areas of progress: labor market flexibility and modernization, the business climate, digitalization, and green growth.
- Directors encouraged further efforts to:
- facilitate re-skilling of the labor force;
- boost female labor force participation;
- continue product market liberalization.
Key statistics (selected)
- Population (millions of people): 10.7
- Per capita GDP (€'000): 17.5
- IMF quota (millions of SDRs): 2,428.9
- Literacy rate (percent): 97.1
- (Percent of total): 0.51
- Poverty rate (percent): 31.8
- GHG emissions per capita (tonnes of CO2 equivalent): 8.2 (10.9)
Economic indicators (2018, 2019, 2020 (prel./proj.), 2021 (proj.)):
- Real GDP growth (percent): 1.9; -9.5; 5.7
- Unemployment rate (percent): 19.3; 17.3; 18.9
- CPI inflation (period avg., percent): 0.8; 0.5; -1.1; 0.6
- General government finances (percent of GDP) 1/:
- Revenue: 47.8; 46.8; 47.7; 49.7
- Expenditure: 46.9; 46.2; 57.5; 54.0
- Overall balance: 0.9; -9.8; -4.3
- Primary balance: 4.2; 3.5; -6.8; -1.3
- Public debt: 184.8; 180.9; 208.1; 199.1
- Broad money (percent change): 4.3; …
- Credit to private sector (percent change): -7.5
- 3-month T-bill rate (percent): 1.1
- Current account (percent of GDP): -3.5; -2.1; -4.1
- FDI (percent of GDP): -1.6; -2.0
- External debt (percent of GDP): 227.8; 240.9; 255.4; 242.0
Memorandum item:
- Nominal GDP (billions of euros) 2/: 184.7; 187.5; 168.2; 179.3
Sources cited in the release: 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.
IMF Executive Board Concludes Second Post-Program Monitoring Discussions with Greece (Press Release No. 20/361), November 30, 2020.
