The fiscal adjustment achieved by Greece constitutes an impressive feat without global precedent and is tangible evidence of the government’s resolve, the International Monetary Fund says in its report that caps the fifth assessment of the country’s program. However the Washington-based Fund also expressed concern over reform fatigue, and estimated that the political commitment to a strategy of debt reduction will be seriously tested in the coming months.
The report, issued on Tuesday after a long wait and negotiations between the IMF and Athens, estimated that there will be a fiscal gap of 2 billion euros in 2015 and 1.7 billion in 2016, which should be covered by measures so that the budget can achieve primary surpluses of 3 percent and 4.5 percent respectively.
The IMF made no secret of its displeasure with last week’s forced resignation of the general secretary for public revenues, Haris Theoharis, pointing to government reluctance to support the autonomous secretariat.
On the banks front, the report said the country’s four systemic lenders will likely need additional capital to handle the rise in bad loans and to contribute toward the country’s economic recovery. The report noted that Greece cannot afford to wait for the economy to grow before it deals with the loan bubble, as it has one of the world’s biggest nonperforming loan rates.
The revised bailout agreement attached to the report provides for the abolition of the low value-added tax rates – mostly applying to cultural commodities and food – the annulment of unfair tax exemptions and the extension of the solidarity levy. It also opens the way toward tax rate reductions in the top brackets provided that state revenues continue to beat their targets. All changes to the tax system will be discussed this fall.
Meanwhile the creditors are considering changes to the Greek social security system, the abolition of limits on group dismissals, a new salary system for the public sector and the creation of a permanent mechanism for the departure of civil servants who fail assessment tests, although, as the International Monetary Fund says in its report that caps the fifth’s report explicitly stated, the latter is forbidden by the Greek Constitution for now.