IMF Executive Board Concludes 2023 Article IV Consultation with Greece

IMF News, January 23, 2024

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The Executive Board of the International Monetary Fund concluded the Article IV consultation with Greece and endorsed the staff appraisal on a lapse-of-time basis.
Greece’s economic outlook has improved notably following a strong post-pandemic recovery.

Real GDP growth projected at 2.3 percent in 2023 and 2.1 percent in 2024.
Headline inflation is forecast to reach 2 percent by end-2025.
Private consumption supported by positive real wage growth.
Investment expected to continue expanding with implementation of the National Recovery and Resilience Plan supported by Next Generation EU funds.
Core inflation pressures expected to dissipate only gradually despite continued normalization of energy and food prices.

Banking system remains resilient, underpinned by balance sheet strengthening.
Non-Performing Loan ratio declined below 5 percent in systemically important banks.
Higher net interest margins have contributed to a strong rebound in bank profits and bolstered capital adequacy.
Banking system maintains sizable liquidity buffers despite substantial repayments of ECB’s targeted long-term refinancing operations (TLTRO).

Risks more balanced for growth but tilted upward for inflation.
Upside inflation risks and downside growth risks include:
- Potential escalation of Russia’s war in Ukraine and the conflict in Gaza and Israel could disrupt trade, trigger renewed energy and food price pressures, and undermine confidence.
- Higher-than-expected persistence in euro area inflation and higher-for-longer interest rates would weigh on regional and domestic demand.
- Acceleration of ambitious structural reforms, in tandem with stronger-than-expected market reactions to the recent investment grade upgrade, could further improve growth prospects.
- Inflation could remain high due to pressures from recent and expected wage and pension increases and weather-related shocks.

Greece’s economic outlook has improved notably but significant challenges remain.
Real GDP is expanding beyond its pre-pandemic trend level, driven by:
- Strong tourism recovery.
- Strengthening investment catalyzed by NGEU funding and FDI inflows.
Strong growth and high inflation have brought the public debt-to-GDP ratio down below its pre-pandemic level with limited financing risks in the medium term due to the favorable debt structure.
Structural imbalances remain: low household savings, still low level of investment, and increasing risks from climate change.
The external position in 2023 is assessed to be weaker than that consistent with medium-term fundamentals and desirable policies (assessment based on preliminary current account data for 2023).

Growth-friendly fiscal consolidation can further strengthen public debt sustainability while supporting inclusive and green growth.
Near-term further tightening and maintaining a primary surplus in the medium term would help strengthen public debt sustainability while limiting additional pressure on inflation.
Fiscal policy should emphasize public investment, including green investment, and critical social spending such as healthcare and education.
Advance fiscal structural reforms, including ongoing efforts to address tax evasion, to enhance fiscal governance and improve the efficiency of fiscal policy.

Further strengthen monitoring and management of risks associated with interest rates, liquidity and funding, and credit exposures in an environment of higher-for-longer interest rates.
Temporarily elevated bank profits should be used to build capital buffers and improve the quality of capital.
Activation of a positive neutral countercyclical capital buffer would help banks guard against potential systemic shocks.
Borrower-based measures for mortgage loan borrowers—such as caps on loan-to-value and on debt service-to-income ratios—would enhance household resilience and contain vulnerabilities in the banking system.

Comprehensive reforms to address structural supply impediments would lift medium-term growth amid a negative demographic outlook.
Continue reforms in digitalizing public administration and tackling barriers to more competition to unlock higher private investment and improve productivity.
Ensure higher labor participation and a better skilled workforce to raise labor market dynamism and facilitate digitalization and the green transition.
Strengthen judicial system reforms and out-of-court proceedings to improve business dynamism and productivity and to increase financial sector resilience by further reducing bank NPLs and distressed debt recovered by credit servicers.
To achieve climate goals and facilitate the green transition:
- Strong implementation of the authorities’ policy framework for renewables, including measures to streamline the licensing framework for new investment and better integrate renewables in an upgraded electricity grid.
- Consider raising the carbon pricing (including excise and feebates) in non-ETS sectors such as transport to further incentivize rapid and efficient green transition as energy price continues to normalize.

Population (millions): 10.5
Per capita GDP (€'000): 19.8
IMF quota (millions of SDRs): 2,428.9
Literacy rate (percent): 97.9
(Percent of total): 0.5
Poverty rate (percent): 28.3
GHG emissions per capita (tons of CO2 equivalent): 6.8
Real GDP growth (percent): 2022: 5.6; 2023: 2.3; 2024 (proj.): 2.1
Unemployment rate (percent): 2022: 12.4; 2023: 10.6; 2024: 9.2
CPI inflation (period avg., percent): 2022: 9.3; 2023: 4.2; 2024: 2.8
General government finances (percent of GDP):
- Revenue: 2022: 50.5; 2023: 47.4; 2024: 46.9
- Expenditure: 2022: 52.9; 2023: 49.0; 2024: 47.7
- Overall balance: 2022: -2.3; 2023: -1.6; 2024: -0.9
- Primary balance: 2022: 0.1; 2023: 1.1
Public debt 1/: 2022: 179.5; 2023: 167.4; 2024: 158.0
Current account (percent of GDP) 2/: 2022: -10.7; 2023: -7.1; 2024: -6.4
FDI (percent of GDP): 2022: -2.4; 2023: -2.1; 2024: -2.9
External debt (percent of GDP): 2022: 270.1; 2023: 259.0; 2024: 250.4
Nominal GDP (billions of euros): 2022: 206.6; 2023: 221.6; 2024: 233.9

IMF Executive Board Concludes 2023 Article IV Consultation with Greece, Press Release No. 24/23, January 23, 2024