16 January 2013

IMF completes first and second reviews under EFF arrangement for Greece and approves €3.24 billion disbursement

Following a political crisis that delayed implementation of the economic programme, understandings were reached with the government on a fully recalibrated economic programme to be supported under the EFF arrangement. Policies were modified to deal with stronger macroeconomic headwinds and to better reflect observed implementation capacity. The fiscal adjustment path was lengthened by two years to 2016 to give Greece more time to reach the primary balance target, privatisation targets were adjusted downwards to reflect weak market conditions, and the authorities specified the adjustment measures necessary to close the fiscal gap through 2014. In addition, authorities took measures to liberalise product markets and advance bank recapitalisation. The Greek government also reached understandings with its European partners on a revised financing framework, including steps to ease its debt burden.

Following the Executive Board’s discussion, Ms Christine Lagarde, IMF Managing Director and Executive Board Chair, said: “The programme is moving in the right direction, with strong fiscal adjustment and notable labour-cost competitiveness gains. While the programme has been adjusted to take account of the deeper recession and implementation capacity, the strategy remains focused on restoring growth, competitiveness and debt sustainability. Forceful structural reforms and broad-based domestic support will be needed to meet challenges, alongside long-term support from Greece’s European partners. Greece has made progress with structural reforms, reflected in recent actions to reduce non-wage labour costs and reform the product market. However, much more remains to be done to achieve the critical mass of reforms needed to boost productivity and lower prices. Ambitious reductions in barriers to competition are crucial. It will also be important for the government to deliver its privatisation plans and to take appropriate steps to strengthen the governance of the process, if necessary.

“Efforts must continue to restructure and strengthen the banking system. With the finalisation of the bank recapitalisation framework, it is vital that the new monitoring and supervisory framework be made effective to protect the public interest and prevent state interference in management. Additional financing from euro area member states to allow Greece to redeem treasury bills from banks could support liquidity and credit creation.“

“Steps are being taken to put Greece’s debt on a more sustainable path. Greece’s European partners have extended repayment periods on their loans and provided assurances that they will consider additional conditional measures and assistance to reduce debt to substantially below 110 percent of GDP by 2022. Euro area Member States have committed to work together with the Greek authorities and the IMF to ensure the success of the programme, reaffirmed the IMF’s preferred creditor status, and committed to providing adequate support to Greece during the programme and beyond, provided that Greece continues to cooperate closely with the IMF in the implementation of appropriate adjustment policies. This would facilitate a return to debt sustainability and timely repayments to the Fund.”

Full press release

© International Monetary Fund