The Bank of Greece sent a clear signal to the government on Wednesday for bolder and faster reforms, as the economy’s strong growth and the management of the national debt may constitute significant factors, but will not suffice to have Greece meet the Finance Ministry’s target of investment grade by 2023.
Against that backdrop the recent European Central Bank decisions to extend its support to Greece beyond the end of the PEPP program are practically buying time for Athens, offering a window of opportunity that has to be used rapidly, the central bank said in its Intermediary Monetary Policy Report.
The BoG points out that despite the progress of the national economy, the Greek sovereign credit rating remains at least two notches below investment grade; that generates a series of problems, but mainly deprives the economy of precious investment resources that could flow in from abroad across many sectors.
Securing the sustainability of the national debt by creating primary budget surpluses and the credible adherence to the rules of the new European fiscal framework are essential for public finances to inspire confidence, accelerating the decline of the debt-to-gross domestic product ratio.
The biggest challenge for the Greek economy in the short term remains the efficient containing of the Covid-19 pandemic, as the inoculation rate remains below the European average and the health effects are more serious than in other countries, the central bank notes.
In that context it anticipates that this year’s growth will top 8%, and amount to 5% in 2022 and 3.9% in 2023, provided that the economy continues to benefit from foreign tourism, the recovery of the eurozone and the acceleration of investments. It does warn, however, of the risks associated with the dangers and uncertainties stemming from the pandemic, the acceleration of inflation, a possible increase of nonperforming loans after the expiry of state support and a possible low absorption rate of the Next Generation EU funds.