IMF Executive Board Concludes 2018 Article IV Consultation with Greece
IMF News, July 31, 2018
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- Published: July 31, 2018
Overview
- Date of conclusion: July 27, 2018.
- Recent developments:
- After a deep and protracted contraction, real GDP increased by 1.4 percent in 2017.
- Recovery supported by large macroeconomic stabilization effort, structural reforms, a better external environment, and substantial support from European partners which secured medium-term sustainability and restored market access.
- Persistent legacy issues: high unemployment and impaired public and private balance sheets.
- Near-term projection:
- Growth expected to reach 2 percent in 2018 and 2.4 percent in 2019.
- Unemployment expected to decline as the output gap closes.
- Risk environment:
- External and domestic risks tilted to the downside, including slower trading partner growth, tighter global financial conditions, regional instability, the domestic political calendar, and risks of reform fatigue.
- Long-term challenge: population aging expected to weigh down potential growth and increase the need to foster productivity.
Executive Board Assessment
- Commendations:
- Directors commended authorities for reforms and policy choices that largely eliminated fiscal and current account imbalances, stabilized the financial sector, reduced unemployment, and restored growth.
- Debt relief by European partners welcomed; efforts put Greece on a path to successfully exit the European Stability Mechanism-supported program in August 2018.
- Remaining concerns:
- Significant crisis legacies and social pressures persist; risks to the outlook remain on the downside.
- Fiscal stance:
- Given significant adjustment to date, Directors agreed Greece does not require further fiscal consolidation.
- Noted cost to growth of achieving high primary balance targets via high taxes and constrained social and investment spending.
- Supported shift to a more growth-friendly and inclusive fiscal policy mix.
- Welcomed authorities’ commitment to fully implement the pre-legislated fiscal package in 2019 and 2020.
- Called for further fiscal rebalancing to reduce direct taxes and increase targeted social spending to support growth and reduce still-high poverty.
- Financial sector and NPLs:
- Urged acceleration of efforts to address high non-performing loans (NPLs) and restore lending.
- Encouraged banks to use strengthened legislative and regulatory frameworks, including development of a secondary market for NPLs.
- A number of Directors encouraged more ambitious NPL targets.
- Called for building up capital buffers, mitigating liquidity and funding risks, and strengthening bank internal governance.
- Supported gradual relaxation of exchange restrictions in line with the milestone-based roadmap, taking due account of banks’ liquidity.
- Structural reforms and competitiveness:
- In context of limited macroeconomic policy space, further structural reforms needed to boost productivity, competitiveness, and social inclusion.
- Greece continues to score lower than peers in competitiveness indicators and lags peers in liberalizing most service sector professions.
- Directors urged improvements in the business environment, fostering competition in product markets, and preserving labor market flexibility through a prudent minimum wage policy and preserving reforms to collective bargaining.
- Governance, public sector efficiency, and statistics:
- Underscored importance of public sector efficiency improvements and strengthened governance; noted shortcomings in tax enforcement.
- Encouraged adequate protection from liability of public officials, implementation of the Anti-Corruption Action Plan with focus on data collection and transparency, and measures to modernize the judiciary.
- Emphasized need to protect gains in the quality of official statistics by defending the statistical agency’s credibility and guaranteeing its professional independence, and addressing remaining shortcomings in reporting.
- Debt sustainability and external support:
- Welcomed debt relief measures by European partners and improvement in debt sustainability over the medium term.
- Agreed relief combined with a large cash buffer will facilitate medium-term market access.
- Some Directors considered long-term gross financing needs will be significantly reduced; many cautioned long-term sustainability remains uncertain and stressed need for realistic assumptions for primary balance targets and growth projections.
- Welcomed continued commitment of Greece’s European partners to support the country in the future, including through further debt relief, if needed.
- Post-program engagement:
- Directors looked forward to close engagement between the authorities and the Fund under the post-program monitoring framework.
Key Projections and Risks
- Growth:
- Real GDP growth (percent): 2016: -0.2; 2017: 1.4; 2018 (proj.): 2.0; 2019 (proj.): 2.4; 2020: 2.2; 2021: 1.6; 2022: 1.2; 2023 (proj.): 1.2.
- Unemployment:
- Unemployment rate (percent): 2016: 23.6; 2017: 21.5; 2018 (proj.): 19.9; 2019 (proj.): 18.1; 2020: 16.3; 2021: 15.2; 2022: 14.4; 2023 (proj.): 14.1.
- Inflation:
- CPI inflation (period avg., percent): 2016: 0.0; 2017: 1.1; 2018 (proj.): 0.7; 2019 (proj.): 1.5; 2020: 1.7.
- Fiscal indicators (percent of GDP) (based on program definitions outlined in the Technical Memorandum of Understanding of the Third Economic Adjustment Program):
- Revenue: 2016: 50.2; 2017: 49.0; 2018 (proj.): 48.7; 2019 (proj.): 47.1; 2020: 46.4; 2021: 45.8; 2022: 45.0; 2023 (proj.): 45.4.
- Expenditure: 2016: 49.5; 2017: 48.0; 2018 (proj.): 48.1; 2019 (proj.): 47.2; 2020: 46.2; 2021: 45.5; 2022: 44.9.
- Overall balance: 2016: 0.5; 2017: -0.1; 2018 (proj.): 0.2; 2019 (proj.): 0.3; 2020: 0.1; 2021: -0.4.
- Overall balance (excl. program adjustors): 2016: 0.6; 2017: 0.8.
- Primary balance: 2016: 3.9; 2017: 4.2; 2018 (proj.): 3.5; 2019 (proj.): 3.0.
- Public debt: 2016: 183.5; 2017: 181.8; 2018 (proj.): 188.1; 2019 (proj.): 177.1; 2020: 169.6; 2021: 162.9; 2022: 155.3; 2023 (proj.): 151.3.
- Money and credit:
- Broad money (percent change): 2016: 5.7.
- Credit to private sector (percent change): 2016: -4.5; 2017: -5.8.
- 3-month T-bill rate (percent): 2016: 3.1; 2017: 2.3.
- Balance of payments:
- Current account (percent of GDP): 2016: -1.1; 2017: -0.8; 2018 (proj.): -0.7; 2019 (proj.): -0.3.
- FDI (percent of GDP): 2016: -2.4; 2017: -1.7; 2018 (proj.): -1.6; 2019 (proj.): -1.5.
- External debt (percent of GDP): 2016: 247.8; 2017: 227.9; 2018 (proj.): 221.3; 2019 (proj.): 209.7; 2020: 199.7; 2021: 190.2; 2022: 182.5; 2023 (proj.): 177.6.
- Exchange rate:
- REER (percent change): 2016: 1.0.
Selected Country Indicators and Structural Facts
- Population (millions of people): 10.8
- Per capita GDP (€'000): 16.5
- IMF quota (millions of SDRs): 2,428.9
- Literacy rate (percent): 97.1
- (Percent of total): 0.51
- Poverty rate (percent): 35.7
- Main products and exports: tourism services; shipping services; food and beverages; industrial products; petroleum products; chemical products.
- Key export markets: E.U. (Italy, Germany, Bulgaria, Cyprus, U. K.), Turkey, U.S.
Policy Recommendations and Actions Urged by Directors
- Fiscal policy:
- Shift to a more growth-friendly and inclusive fiscal policy mix.
- Implement pre-legislated fiscal package in 2019 and 2020.
- Rebalance fiscal policy to reduce direct taxes and increase targeted social spending to support growth and reduce poverty.
- Financial sector:
- Accelerate reduction of NPLs, develop secondary market for NPLs, consider more ambitious NPL targets.
- Build up capital buffers, mitigate liquidity and funding risks, and strengthen bank internal governance.
- Gradually relax exchange restrictions in line with the milestone-based roadmap, accounting for bank liquidity.
- Structural reforms:
- Boost productivity, competitiveness, and social inclusion through further structural reforms.
- Improve business environment and foster competition in product markets.
- Preserve labor market flexibility with a prudent minimum wage policy and preservation of collective bargaining reforms.
- Governance and institutions:
- Improve public sector efficiency and tax enforcement.
- Provide adequate protection from liability for public officials, implement Anti-Corruption Action Plan with focus on data collection and transparency, and modernize the judiciary.
- Defend and guarantee professional independence and credibility of the statistical agency; address remaining reporting shortcomings.
- Debt and external engagement:
- Maintain realistic assumptions for primary balance targets and growth projections.
- Continue engagement with European partners for support and potential further debt relief if needed.
- Continue close engagement with the Fund under post-program monitoring.
IMF Communications Department — Press Release No. 18/322 (July 31, 2018)
