BUSINESS

BoG head warns of numerous risks

SOTIRIS NIKAS

TAGS: Economy, Finance

The completion of the bailout review will have a positive impact on economic activity but risks remain for the country, the governor of the Bank of Greece, Yannis Stournaras, warned on Wednesday, while predicting a small contraction rate for this year.

In his report on monetary policy, Stournaras stressed that there is a great risk from increases in taxes and social security contributions that could have a recessionary impact. To contain the negative impact, the BoG chief has called on the government to apply the reforms it has agreed with its creditors immediately and without exception, while also urging the promotion of privatizations.

Stournaras went on to describe the decisions of the May 24 Eurogroup meeting regarding the lightening of the national debt as hesitant and argued that mild measures such as the extension of maturities will ensure the debt’s sustainability, as well as lowering the primary budget surplus target to 2 percent instead of 3.5 percent of gross domestic product. Such a move would allow for the easing of taxation and release resources for the strengthening of economic activity, the central banker noted in his report.

The BoG chief projected a GDP contraction of 0.3 percent for this year and a significant rebound in the latter half of 2016. He added that overtaxation is likely to hamper that rebound, though, as the higher-than-expected taxation introduced as of this month will not only harm the economy but will also result in the country missing its fiscal targets due to the GDP contraction.

Furthermore, Stournaras warned that any delay in the reforms and privatizations included in the bailout program will hamper the recovery of economic activity, rekindling uncertainty, undermining the climate of confidence and weakening the prospects of exiting the crisis. He further warned that a possible escalation of the migration crisis could have a considerable negative impact on tourism and commerce.

Stournaras also advocated the reduction of corporate tax rates, arguing that a tax cut could help in increasing both domestic and foreign direct investments. This, he noted, should be combined with political commitment to a stable tax system.

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