{
  "title": "Greece: Staff Concluding Statement of the 2019 Article IV Mission",
  "publication": "IMF News, September 27, 2019",
  "sourceUrl": "https://www.imf.org/en/news/articles/2019/09/27/greece-staff-concluding-statement-of-the-2019-article-iv-mission",
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  "summary": "The new government inherited a tepid economic recovery weighed down by crisis legacies and across-the-board policy reversals since program exit in August 2018.",
  "publishDate": "2019-09-27",
  "sections": [
    {
      "heading": "Overall assessment and context",
      "content": "- The new government inherited a tepid economic recovery weighed down by crisis legacies and across-the-board policy reversals since program exit in August 2018.\n- Crisis legacies include: high public debt, high non-performing loans, over-indebted borrowers, low productivity, a dearth of investment, a weak payment culture, and adverse demographics.\n- Program-era reforms were put on hold, canceled, or reversed (examples cited: fiscal structural reforms put on hold; pre-legislated pension and personal income tax (PIT) reform packages canceled; key elements of the 2011-13 labor reforms and efforts to broaden the tax base and strengthen the payment culture reversed).\n- The government has made a promising start in unblocking structural reforms and privatizations and is advancing the clean-up of bank balance sheets, but a stronger effort in all policy areas is urgently needed to: become competitive within the currency union, eliminate the debt overhang, and achieve more inclusive growth."
    },
    {
      "heading": "Growth outlook and macro prospects",
      "content": "- Near-term growth:\n  - Growth is expected to be around 2 percent in 2019 and 2020.\n  - Near-term growth benefits from a cyclical recovery and improved market and consumer sentiment, translating into higher investment.\n- Long-term growth and income:\n  - Long-term growth is projected at 0.9 percent.\n  - At that pace, it will take another decade and a half for real per-capita incomes to reach pre-crisis levels.\n- Public debt and vulnerabilities:\n  - Public debt-to-GDP is projected to trend down over the next decade with relatively low liquidity risks in the medium-term, though long-term sustainability is not assured under realistic macro assumptions.\n  - Still-weak banks dampen growth prospects and pose significant fiscal and financial stability risks.\n  - Greece is vulnerable to a range of external and domestic shocks.\n- External competitiveness:\n  - Considering Greece’s cyclical position and desirable policies in the medium term, staff assesses there is a substantial overvaluation of the real effective exchange rate.\n- Policy implication:\n  - The new government should deploy a full range of policy tools and overcome long-standing vested interests to push long-term growth meaningfully above current projections."
    },
    {
      "heading": "Banking sector: priorities and recommended approach",
      "content": "- Top priority: fixing the banking sector, described as \"a misfiring engine of growth.\"\n- Government goal: achieve single-digit non-performing exposures ratios by mid-2022.\n- Proposed support: the ‘Hercules’ asset protection scheme could provide significant support (important details yet to emerge).\n- Recommended strategy:\n  - Develop a more comprehensive, ambitious, and well-coordinated strategy to fully restore asset quality and the quality and levels of bank capital, liquidity, and profitability.\n  - Emphasize primarily market-based efforts; any public support should be subject to a dynamic cost-benefit analysis.\n  - Support with further improvements in the legal framework (examples: more efficient judicial processes and modernization of the insolvency regime).\n- Other issues:\n  - Residential mortgage protection and ad hoc tax and social security installment schemes have prevented meaningful debt restructuring and undermined the payment culture and should be permanently phased out."
    },
    {
      "heading": "Fiscal policy: targets, composition, and public investment",
      "content": "- 2019 fiscal outcome:\n  - The 2019 fiscal primary surplus is expected to be in line with Greece’s 3.5 percent of GDP commitment to European partners—though dependent on growth-dampening under-execution of public investment.\n- 2020 recommendation:\n  - Staff recommends that the government and European partners build consensus around a lower primary balance path, given ample economic slack and critical unmet social spending and investment needs, and to accommodate spending that would create synergies with stepped-up structural reforms.\n- Fiscal policy mix and composition recommendations:\n  - Plans to cut direct tax rates and strengthen compliance are welcome, but broadening the tax base could achieve more.\n  - Greece remains near the EU bottom in the share of workers paying personal income taxes and has one of the largest VAT compliance gaps.\n  - Relative to the rest of the EU, too much spending goes to pensions and the government wage bill, and too little to other social spending.\n  - To address critical needs, Greece should significantly scale up social spending (examples: the means-tested guaranteed minimum income and public health) and investment.\n  - To free up fiscal space, pension benefits of existing retirees should be calculated in line with the new benefit formula (and the recent restoration of pre-crisis ‘pension bonuses’ should be reversed).\n  - Accelerating public financial management reforms will help better execute the public investment budget, enhance budget control, and strengthen risk management (including from ongoing court cases).\n  - Continued efforts are needed to strengthen the Independent Authority of Public Revenue and mobilize the Anti-Money Laundering framework to combat tax evasion."
    },
    {
      "heading": "Structural reforms, privatization, and business climate",
      "content": "- The government deserves credit for unblocking privatization and pushing through business deregulation and digitalization.\n- Remaining challenges:\n  - The economy remains over-regulated and dominated by small and medium-sized enterprises operating in an unwelcoming business climate.\n  - Greece is at or near the bottom of the Euro Area in many cross-country surveys.\n  - More is needed to de facto liberalize product markets and closed professions and strengthen competition."
    },
    {
      "heading": "Labor market reforms and employment policies",
      "content": "- Staff supports recent legislation to lift new restrictions on dismissals and the intention to limit unilateral appeals to arbitration.\n- Plans to introduce an opt-out mechanism from collective bargaining go in the right direction but should aim at full restoration of the 2011-13 landmark labor reforms.\n- Additional recommended measures:\n  - Reduce non-wage costs.\n  - Link adjustment of minimum wages to productivity growth.\n  - Strengthen active labor market policies.\n  - Remove bottlenecks to female labor force participation.\n- Objectives: address hysteresis, poverty (including in-work), and social exclusion; support higher employment, growth, and competitiveness.\n\nGreece: Staff Concluding Statement of the 2019 Article IV Mission — September 27, 2019\n\n---\n\n\n References\n\n- Greece and the IMF\n- IMF Policy Advice -- A Factsheet\n- Mission Concluding Statements\n- PRESS CENTER\n- https://www.imf.org/en/home\n\nSource: https://www.imf.org/en/news/articles/2019/09/27/greece-staff-concluding-statement-of-the-2019-article-iv-mission"
    }
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    "Published: September 27, 2019",
    "The new government inherited a tepid economic recovery weighed down by crisis legacies and across-the-board policy reversals since program exit in August 2018.",
    "Crisis legacies include: high public debt, high non-performing loans, over-indebted borrowers, low productivity, a dearth of investment, a weak payment culture, and adverse demographics.",
    "Program-era reforms were put on hold, canceled, or reversed (examples cited: fiscal structural reforms put on hold; pre-legislated pension and personal income tax (PIT) reform packages canceled; key elements of the 2011-13 labor reforms and efforts to broaden the tax base and strengthen the payment culture reversed).",
    "The government has made a promising start in unblocking structural reforms and privatizations and is advancing the clean-up of bank balance sheets, but a stronger effort in all policy areas is urgently needed to: become competitive within the currency union, eliminate the debt overhang, and achieve more inclusive growth.",
    "Near-term growth:",
    "Long-term growth and income:",
    "Public debt and vulnerabilities:",
    "External competitiveness:",
    "Policy implication:",
    "Top priority: fixing the banking sector, described as \"a misfiring engine of growth.\"",
    "Government goal: achieve single-digit non-performing exposures ratios by mid-2022.",
    "Proposed support: the ‘Hercules’ asset protection scheme could provide significant support (important details yet to emerge).",
    "Recommended strategy:",
    "Other issues:",
    "2019 fiscal outcome:",
    "2020 recommendation:",
    "Fiscal policy mix and composition recommendations:",
    "The government deserves credit for unblocking privatization and pushing through business deregulation and digitalization.",
    "Remaining challenges:",
    "Staff supports recent legislation to lift new restrictions on dismissals and the intention to limit unilateral appeals to arbitration.",
    "Plans to introduce an opt-out mechanism from collective bargaining go in the right direction but should aim at full restoration of the 2011-13 landmark labor reforms.",
    "Additional recommended measures:",
    "Objectives: address hysteresis, poverty (including in-work), and social exclusion; support higher employment, growth, and competitiveness.",
    "[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)",
    "[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)"
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