IMF says Greece needs to boost reforms

Greece has to adopt further bold reforms in social insurance, the labor market, public finances and privatizations in order to bolster the economy’s competitiveness and ensure its growth prospects in the medium term, the International Monetary Fund said on Wednesday. «Persistent loss of cost competitiveness risks constraining Greece’s growth in the medium term,» the IMF said in its 2007 review of the Greek economy. It projected, however, that the growth rate would remain high this year, at about 3.7 percent. On April 22, Greece’s central bank revised down its 2008 growth forecast to 3.5 percent, from a previous estimate of 3.7 percent in February. The economy grew at 4 percent in 2007. The IMF also warned that risks to the outlook have increased amid weaker global economic conditions and credit market turmoil. «We encouraged the government to create the appropriate social conditions so as to promote further bold reforms,» the report said. Despite the recent social security reform, the IMF urged the government to submit further reform proposals designed to meet the future impact of the aging population. The IMF urged more resolute reforms in the labor market, particularly making dismissals and individual, as opposed to collective, pay agreements easier. Competition also has to be bolstered, as it lags compared to markets abroad, the report said. This would involve more privatizations in infrastructure, simplifying licensing procedures for new businesses and deregulating network and transport systems. The IMF said Greece’s banking system appears sound and unaffected by the recent financial market turmoil, but cautioned that the situation needed continued monitoring. «(Banks) are facing a series of risks arising from the continuing rapid credit expansion and the size of non-performing loans, as well as from non-performing loans and exposure to the more unstable markets of SE Europe,» it said. Finally, the Fund welcomed Greece’s plan to balance the budget by 2010 but said improving the country’s tax administration and collection and tightening control on spending would help it achieve that goal.