ECONOMY

IMF: Economy’s prospects good but not without risks

The Greek economy’s prospects in the years ahead on the whole look good, but in the long-term the country needs to address two major potential risks, its high current-account deficit and inflationary pressures, an International Monetary Fund (IMF) report released late on Thursday said. The broader dangers, for which the IMF sounds the warning bell, also include the high rate of credit expansion and the economy’s declining competitiveness. As regards credit expansion in particular, IMF warns that if its rise is not brought under control, it will have consequences on banks’ balance sheets. It should be noted that the IMF’s analyses and forecasts are based on the government’s own revised data as regards gross domestic product (GDP) for 2000-2005, which is pending approval by Eurostat. The government has proposed that GDP be revised upward by 26 percent. The IMF says in a footnote of the report that the government opted to draft the 2007 budget on the basis of the old data, so as to stress that the 2006 public deficit has receded to below 3 percent of GDP without taking into account the revision. In fact, the budget envisages a deficit of 2.4 percent of GDP. Using the revised data, the IMF sees a public deficit of 2.1 percent for 2006 and 1.9 percent for this year. Public debt is estimated – based on the revised data – at 83 percent of GDP for 2006, gradually falling to 72 percent of GDP in 2011. The IMF also forecasts a falling trend in the country’s growth rate in coming years, from 4.1 in 2006 to 3.8 percent in 2007, 3.5 percent in 2008, 3 percent in 2009 and 2.8 percent in both 2010 and 2011. The key factors for the good prospects of the economy in the coming years include, according to the report, the continuation of efforts to cut the public deficit, with a view to eliminating it in 2010 and recording a surplus in 2011, and the promotion of reform of the country’s social insurance system, for which the IMF is urging a speeding up of preparations so that the next government may be able to tackle the matter without delay. The IMF is also urging the liberalization of labor regulations, an improvement in the investment environment, the cutting of red tape, improving the efficiency of state enterprises and utilities, and the continuation of the privatizations program. The markets of goods of broad consumption and necessities are also seen as being in need of further liberalization, the report says. However, unemployment is expected to remain a thorn in the side of the economy, as it is projected to rise from 8.8 percent this year to 9.5 percent by 2011.