Greece has made big progress in restoring sustainability to its public finances, strengthening the banking sector’s resilience, and improving the economy’s competitiveness last year but it needs to remain on track and adopt more growth-oriented policies, the European Stability Mechanism (ESM) said in its annual country report on Thursday.
“Public finances need to remain on a sustainable path, while incorporating more growth-oriented policies. Already implemented or adopted reforms, such as the labour market reform and the lowering of income taxes in combination with a broadening of the tax base, need to be safeguarded and should not be reversed,” the organisation said in a press release.
The ESM warned that if a Greek court overturns “key structural reforms,” the fiscal impact should be addressed by measures in the same policy field.
It also said that further structural reforms are necessary to boost productivity and enhance competitiveness, such as making the economic environment more business friendly, reducing the time needed to resolve legal disputes, further improving the effectiveness of public administration while maintaining it at its current size, and enhancing the efficiency of state-owned enterprises’ management.
“These institutional reforms, coupled with privatisations and improved management of state assets, are critical to attracting both foreign and domestic investment and strengthening future growth,” it notes.
Moving forward, Greece will also need to support banks’ efforts to improve their balance sheets with a comprehensive NPL reduction strategy and improved legislative framework, which will help Greek banks’ ability to lend to the economy and support the economic recovery.