NEWS Release - Greece: Priorities for a Return to Sustainable Growth
Copyright: IMF COMMUNICATIONS DEPARTMENT
Media Relations
E-mail: media@imf.org
Phone: 202-623-7100
Greece should deepen and accelerate reforms, which, together with further debt relief, are needed to allow the economy to return to a sustainable growth path, the IMF said in its latest annual assessment of the Greek economy.
The IMF’s Article IV report notes that the country has made progress in reining in its fiscal and external deficits, although this has taken a heavy toll on society. The report identifies a path to sustainable growth and prosperity that requires a two-pronged approach: ambitious policies on the part of the Greek authorities and significant debt relief on the part of Greece’s European partners.
The Q&A below highlights some of the key issues about the country’s progress and its reform priorities for the period ahead.
IMF News: Greece had its last Article IV Consultation in mid-2013. How have the Greek economy and policies evolved since then?
Greece reduced its fiscal and current account deficits significantly since the onset of the crisis. In particular, the fiscal primary and current account deficits declined from 11 and 15 percent of GDP, respectively, to around zero at the end of 2015. This is an impressive adjustment for a country that is part of a currency union and does not have access to monetary and exchange rate policy tools.
But extensive fiscal consolidation and internal devaluation have come with substantial costs for society. The unemployment rate is still unacceptably high at 23 percent (October 2016), and Greece has suffered a prolonged recession, with output 25 percent below its pre-crisis level. The high societal costs have weakened support for ongoing reforms.
The government renewed its reform effort since mid-2015 with a new adjustment program supported by the European Stability Mechanism. Specifically, they legislated a number of important fiscal (e.g. pensions, VAT, income tax), financial (e.g. insolvency legislation, nonperforming loan servicing and sales loans, bank governance) and structural reforms (e.g. privatization, actions to facilitate competition in key sectors). So, in all, there have been some setbacks but also some progress since the last Article IV consultation.
IMF News: Greece now has a new set of policies in place. Are these reforms sufficient for Greece to embark on a sustained recovery?
While Greece has recently made progress with carrying out reforms, challenges remain. In particular, fiscal policies are still not conducive to growth. Half of wage earners are exempt from personal income tax, while the deficit of the pension system remains at a record high (10.5 percent of GDP, almost four times as high as the euro-area average). At the same time, overdue bank loans make up 45 percent of total loans and unpaid taxes to the state amount to 70 percent of GDP. As a result, investment and growth remain weak. For Greece to return to sustainable growth and exit successfully from official financing, it needs to deepen and accelerate reforms.
Media Relations
E-mail: media@imf.org
Phone: 202-623-7100
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