## Greece: Staff Concluding Statement of the First Post-Program Monitoring Mission _IMF News, January 25, 2019_ ## Source details **Canonical URL:** [Greece: Staff Concluding Statement of the First Post-Program Monitoring Mission](https://www.imf.org/en/news/articles/2019/01/25/ms012519-greece-staff-concluding-statement-of-the-first-post-program-monitoring-mission) ## Other formats - [Markdown version](/en/news/articles/2019/01/25/ms012519-greece-staff-concluding-statement-of-the-first-post-program-monitoring-mission/index.md) - [Structured JSON version](/en/news/articles/2019/01/25/ms012519-greece-staff-concluding-statement-of-the-first-post-program-monitoring-mission/index.json) - [Bundle manifest](/en/news/articles/2019/01/25/ms012519-greece-staff-concluding-statement-of-the-first-post-program-monitoring-mission/bundle-manifest.json) ## Bibliographic details - Published: January 25, 2019 --- ### Mission overview - An International Monetary Fund (IMF) mission visited Athens during January 21-25, 2019 for the first Post-Program Monitoring (PPM) discussions—part of the IMF’s regular surveillance of countries with IMF credit outstanding above either SDR 1.5 billion or 200 percent of quota. - PPM missions are focused on vulnerabilities and risks to the repayment capacity to the IMF. - The IMF mission was coordinated with the European Commission, the European Central Bank, and the European Stability Mechanism. - Date of publication: January 25, 2019. ### Growth and near-term outlook - Economic activity is expected to accelerate in 2019, and then gradually moderate over the medium-term as the output gap closes. - Growth projections: - Growth is projected to reach 2.4 percent in 2019, up from an estimated 2.1 percent in 2018. - Over the medium term, growth is expected to reach just above 1 percent, when economic slack is eliminated. - Drivers of 2019 growth: - Exports, especially tourism. - Consumption, supported by declining unemployment and higher confidence. - Recovery in private deposits has allowed a further relaxation of capital flow management (CFM) measures. - Constraints: - Investment growth remains tepid due to high base effects and still-weak investor sentiment. - The current account deficit is expected to remain broadly unchanged in the medium term after deteriorating in 2018. ### Public debt, financing, and risks - Medium-term public debt repayment capacity remains robust, reflecting: - The government’s moderate gross financing needs under the baseline. - A substantial precautionary cash buffer. - Primary surplus targets are expected to be met and debt is projected to decline over the medium term. - However, a strong policy response would be required to ensure the sovereign’s repayment capacity over the medium-term if significant downside risks materialize. - Downside risks have intensified, with significant crisis legacies including: - High public debt. - Impaired private balance sheets. - A weak payment culture. - External and domestic risk factors: - External: deterioration in trading partner growth, potential sharp tightening of global financial conditions, slowdown in global trade. - Domestic: reform fatigue (or reversals) in the context of an election year could weaken investment and medium-term growth and competitiveness prospects. - Fiscal risks stem from ongoing court cases. - Banks remain sensitive to financing conditions and regulatory changes. ### Policy recommendations — labor markets and competitiveness - To maintain hard-earned competitiveness gains amid rising wage pressures, Greece should press ahead with its unfinished reform agenda. - Labor market recommendations: - Greater flexibility to mitigate negative effects on competitiveness and employment from wage pressures in excess of productivity growth and the abolition of the youth minimum wage. - Complementary structural reforms in other areas (including product markets) to boost productivity and lower non-wage costs. - The authorities’ growth strategy provides laudable high-level objectives, but further measures will be needed to achieve them. ### Policy recommendations — fiscal policy - A growth-friendly rebalancing of the fiscal policy mix, and preparing contingency plans to address fiscal risks, are priorities. - Fiscal strategy guidance: - Budget-neutral improvements in the fiscal policy mix can facilitate higher, more inclusive growth while meeting the fiscal targets agreed with European Institutions. - The government should prioritize cuts to wage and profit tax rates, funded by the planned broadening of the personal income tax base next year. - A contingency plan should be prepared to deal with potential fiscal shocks from ongoing court cases to core pension and wage reforms, and from contingent liabilities such as guaranteed bank loans. - Accelerating ongoing IAPR and public financial management reforms will further support spending efficiency, build fiscal space, and mitigate fiscal risks. ### Policy recommendations — banking sector and NPLs - Restoring growth-enhancing bank lending will require swift, comprehensive, and well-coordinated actions to help repair balance sheets. - Key recommended actions: - Coordinated steps by key stakeholders to support banks’ efforts to achieve a faster reduction of non-performing loans (NPL). - Revisit the design of the household insolvency framework and facilitate the efficient use of electronic auctions and out-of-court workouts. - Public funds could support market-based efforts to reduce NPLs, but the cost-effectiveness of such a strategy should be assessed comprehensively, including its impact on bank and sovereign balance sheets. - Improve internal governance to restore profitability and build capital and liquidity buffers. - Continue CFM liberalization in line with the conditions-based roadmap. ### Closing - Growth and job creation in Greece are expected to accelerate further in 2019, while public sector financing needs remain manageable. - To maintain growth momentum, reform efforts should focus on raising productivity and reducing vulnerabilities through the measures outlined above. - The mission expressed gratitude to the Greek authorities and other interlocutors for a close and constructive dialogue. *IMF staff concluding statement, January 25, 2019.* --- ## References - [Greece and the IMF](http://www.imf.org/external/country/GRC/index.htm) - [Mission Concluding Statements](https://www.imf.org/en/news/searchnews) - [PRESS CENTER](http://presscenter.imf.org/) - [https://www.imf.org/en/home](https://www.imf.org/en/home) _Source: https://www.imf.org/en/news/articles/2019/01/25/ms012519-greece-staff-concluding-statement-of-the-first-post-program-monitoring-mission_