Greece needs to avoid across-the-board budget cuts that disproportionately hurt pensioners and employees as it moves into the next phase of its bailout and tries to restore growth, the International Monetary Fund said.
Three years after receiving its first international bailout, with a debt burden that is still too high, Greece needs in-depth changes to its economy to both meet its fiscal targets and attract investors, the IMF said.
“Greece is making progress in overcoming deep-seated problems in the midst of a very serious and socially painful recession,” IMF staff wrote at the end of a visit to assess the country’s economy. “However, insufficient structural reforms have meant that the adjustment has been achieved primarily through recessionary channels, with unequal distribution of the burden of adjustment.”
Greece and the so-called troika of international creditors — the IMF, the European Commission and the European Central Bank — last month reached an agreement on conditions such as firing state workers to disburse the next payment of aid under the country’s second rescue package. Making room for better qualified public servants and fighting tax evasion will be key for Greece to meet its fiscal targets in coming years, the IMF said in today’s report.
“Very little progress has been made in tackling Greece’s notorious tax evasion,” IMF staff wrote in the so-called Article IV consultation of Greece’s economy, the first such annual review since 2009 according to the fund’s website. “The rich and self-employed are simply not paying their fair share.”
The Washington-based fund also warned about a “mounting tide of non-performing loans” in the banking system and called for a quick re-privatization of the industry after injections of public capital raised the risk of government interference.
Euro-area finance ministers revamped the country’s second aid program in November, giving Prime Minister Antonis Samaras two extra years until 2016 to meet budget-reduction targets.
The IMF also reminded European nations that they committed “to provide additional relief, if needed, to keep debt on the programmed path” and “to bring it substantially below 110 percent of” gross domestic product by 2022, according to the staff report.
“With Greece’s debt now overwhelmingly held by the official sector, such a commitment is essential to assure creditors that a credible framework for dealing with Greece’s debt overhang is now in place,” it said.