IMF ever more pessimistic on Greece

Greek deficits and public debt are set to soar while the recession will be deep, say the forecasts of the International Monetary Fund (IMF), according to reliable sources. In the report it is to release tomorrow, the IMF will recommend measures of a permanent nature amounting to 3.5 billion euros as of 2010 and for many years to come in order to bring public finances under control. It will further propose bold changes to the social security system and the labor market to ensure fiscal stability in the long term and strengthen the country’s competitiveness. The IMF is expected to estimate that Greek gross domestic product will shrink by 1.7 percent this year. More worryingly, the organization does not expect any return to robust growth rates in the foreseeable future. The economy will remain in recession in 2010 and will slowly start to rebound from 2011. This is the most pessimistic scenario to date. The Economy Ministry expects zero growth this year and the European Commission foresees 0.9 percent recession. However, unofficially the Economy Ministry considers the contraction of GDP certain, and the Commission intends to make a downward revision of its estimate, to minus 1.5 percent. The IMF further suggests that unemployment will exceed 10 percent and the public debt will approach 109 percent of GDP this year and 116 percent in 2010, while, unless drastic measures are taken, debt will soar to over 120 percent of GDP in 2011. Therefore the organization will be calling for measures on both the revenue and expenditure fronts to reduce the deficit by 1.5 percent per year from 2010. Only then can the deficit fall to below the threshold of 3 percent of the GDP, it argues. In the long term, Greece will have to reform its social security system, with the IMF specifically asking for a rise in the age of retirement, calculation of pensions based on contributions for one’s entire working life, not just the last five years, and abolishing seasonal benefits for pensioners.