EU-IMF report highlights rebound risks

The two biggest worries in the Greek streamlining program according to the draft report by the country’s creditors published on Monday by Reuters are doubts about the country’s chances of returning to growth in the near term and the vested interests that are hampering the implementation of reforms.

The report by the European Commission and the International Monetary Fund says that the fiscal gap for 2013 and 2014 has been covered, but for the next two years (2015-16) the government will have to specify new measures adding up to 4 percent of gross domestic product, or 7.6 billion euros.

In its 2014 budget, to be presented this fall, Athens will therefore have to specify “additional measures of 1.8 percent of GDP for 2015 and 2.2 percent of GDP for 2016” so that the agreed primary surplus targets can be met. This entails measures totaling 3.4 billion euros for 2015 and 4.2 billion for 2016.

Finance Ministry officials counter that there is no such provision in the revised memorandum of understanding with Greece’s creditors. At any rate, they say, “any fiscal gap that may emerge for 2015-16 will likely be covered by the improved performance in 2013-14.” Sources say that it has been agreed that the gap for 2015-16 will be covered with measures amounting to 2.4 billion euros.

The risks for this year concern the recovery of the economy, which is still burdened by the austerity measures, and the weak growth in the eurozone; the reforms in key sectors (public administration and state revenues) that are coming up against vested interests; and the need for further progress in reforms in product and services markets for GDP and revenues to rebound next year.

The report further reveals that the target for privatization revenues has been lowered from 2.6 billion euros to 2 billion for this year, and the overall target for revenues up to 2020 from sell-offs has also been cut by 600 million euros, dropping from 22 billion to 21.4 billion euros. The report notes that although there has been progress in preparing state assets for privatization, the total speed of the procedures is far from satisfactory.

The country’s creditors are also putting pressure on Athens to speed up and present before the next tranche disbursement a plan for Public Power Corporation’s privatization, which should be completed by 2015.