## IMF Executive Board Concludes 2018 Article IV Consultation with Greece

_IMF News, July 31, 2018_

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## Bibliographic details
- Published: July 31, 2018

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### 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)*

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## References

- [https://www.imf.org/-/media/images/imf/bios/imfboard.jpg](https://www.imf.org/-/media/images/imf/bios/imfboard.jpg)
- [The Executive Board](https://www.imf.org/external/np/sec/memdir/eds.aspx)
- [Greece and the IMF](http://www.imf.org/external/country/GRC/index.htm)
- [IMF Policy Advice -- A Factsheet](https://www.imf.org/en/about/factsheets/imf-surveillance)
- [Press Releases](https://www.imf.org/en/news/searchnews)
- [PRESS CENTER](http://presscenter.imf.org/)
- [http://www.imf.org/external/np/sec/misc/qualifiers.htm](http://www.imf.org/external/np/sec/misc/qualifiers.htm)
- [https://www.imf.org/en/home](https://www.imf.org/en/home)

_Source: https://www.imf.org/en/news/articles/2018/07/31/pr18322-greece-imf-executive-board-concludes-2018-article-iv-consultation_