IMF rejects spending plans

Fund opposes raising of civil servant wages and pensions, sees GDP growth at 3.5% in 2022

IMF rejects spending plans

The International Monetary Fund is opposed to an increase in civil servants’ pensions and salaries as the government is preparing to do both: raise pensions by about 5% from next year, as required by law, and expand the abolition of the solidarity levy to retirees. The IMF is also skeptical of plans to reduce social security contributions.

“The impact of the plan for permanent reductions in social security contributions and the abolition of the solidarity levy must be carefully considered,” said the Greece: 2022 Article IV Consultation report, sent as part of the IMF’s mission earlier this month. It added that the government must resist “pressure to increase the pensions and salaries of civil servants.”

Finance Minister Christos Staikouras expressed his certainty on Skai that some additional fiscal space will be found later this year, as he estimated that the need for support against fuel hikes would continue. He added that the abolition of the solidarity levy to the state on pensioners from January 2023 remains a government priority.

This is not the first time the IMF has challenged this government priority, as its view is that other goals are paramount in these difficult times. “The recent increase in health spending and public investment must be sustained,” it noted.

Otherwise, the report is generally positive, noting the strong recovery and acknowledging that the government has continued its reforms despite the difficulties, while nonperforming loans have also declined. In addition, it highlights the repayment of the IMF loans in full, so the post-financing evaluation process has been completed.

Growth is estimated at 3.5% this year and 2.6% in 2023, against the government’s forecast in the Stability Program of 3.1% and 4.8%, respectively, while inflation is projected to reach 6.1% this year and 1.2% in 2023 (compared to the government’s forecast of 5.6% and 1.6% respectively). The IMF adds that the debt is declining and that the risks are manageable in the medium term.

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