IMF’s praise and warnings

IMF’s praise and warnings

The International Monetary Fund report on Greece, published on Tuesday, looks little like past texts of the Fund about this country, as many things have changed. It expresses no concerns about debt in the medium term, or fiscal adjustment, finds banks “resilient,” and speaks well even about labor market reforms, which it has always pushed for.

However, it remains steadfast in its view that civil servant salaries and pensions are quite high compared to other countries, so the state should prioritize its spending allocation elsewhere. Pressures for wage and pension increases must be fended off, it argues, in order to make room for critical social and investment spending.

Interestingly, the Fund is positive about the recent measures on tax evasion, calling them “important and welcome.”

Of course, it identifies risks, mainly related to medium-long-term growth, when the Recovery Fund will have expired. With the current level of savings, a significant structural imbalance, the country’s large investment gap, but also the demographics, the growth prospects in the medium term do not appear bright.

According to the IMF mission’s findings, presented at a press conference by the chief Jong Shik Kang, the growth rate is seen at 2.5% this year, and 2% in 2024, but in view of the end of the Recovery Fund, the low potential growth and against the backdrop of negative demographic developments, it will decline to 1.25% in the medium term.

Sources of pressure and concern for the IMF are the monetary tightening, inflation – expected to reach 2% at the end of 2025 – and real estate prices.

The Fund proposes a growth-friendly fiscal policy. It approves the government’s intention of a primary surplus of 2% of GDP in the medium term, noting that this way it also ensures debt sustainability and fiscal space for investment and social spending.

It also proposes an acceleration of reforms. It singles out the administrative reforms, which facilitate business, the speeding up of justice, but also the encouragement of participation in the labor market, especially of women, through providing childcare. 

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