The Executive Board of the International Monetary Fund (IMF) completed on Friday the third review of Greece’s performance under an economic program supported by an Extended Fund Facility (EFF) arrangement. The completion of this review enables the disbursement of SDR 1.5 billion (about €1.74 billion or US$2.26 billion), which would bring total disbursements under the arrangement to SDR 5.7 billion (about €6.57 billion or US$8.55 billion).
The EFF arrangement, which was approved on March 15, 2012 for a total amount of about €28 billion (see Press Release No. 12/85), is part of a joint package of financing with euro area member states amounting to about €173 billion over four years. It entails exceptional access to IMF resources equivalent to about 2,159 percent of Greece’s quota.
Against the backdrop of a still contracting economy and very high unemployment, the Greek authorities have pressed forward with implementing their economic program, with a focus on restoring fiscal sustainability, reforming tax collection, boosting competitiveness through structural reforms, and recapitalizing the banking sector. The economic downturn is expected to bottom out this year, with a gradual recovery taking hold in 2014.
The Executive Board also concluded the 2013 Article IV Consultation with Greece, which discusses policies from a longer-term perspective. A Public Information Notice (PIN) on the Board’s assessment of the Consultation will be released separately.
Following the Executive Board’s discussion, Ms. Christine Lagarde, Managing Director and Chair, stated:
“The Greek authorities have made commendable progress in reducing fiscal and external imbalances and in restoring competitiveness. The authorities remain committed to make rapid progress on productivity-enhancing structural reforms and on tax and public administration reforms.
“Greece is well underway to complete its ambitious fiscal adjustment plan, and is on track to meet its 2013 fiscal targets. A critical priority is to tackle tax evasion by pressing forward rapidly with reform of the revenue administration to improve operational independence and make the burden of adjustment more equitable. Pressures to reduce taxes using the space from any fiscal over-performance should be resisted. Decisive steps are needed to reform public administration, including through targeted staff reductions, to lower costs, improve efficiency, and increase fairness.
“Efforts continue in earnest to address external imbalances and restore competitiveness, notably through far-reaching labor market reforms, which have increased wage flexibility. Broader structural reforms to enhance productivity and improve the business environment need to be accelerated, including the liberalization of regulated professions and other product and service markets. Such reform is essential to reduce costs, improve efficiency, and ensure that the burden of adjustment falls not just on wages.
“The recapitalization of core banks and resolution of non-core banks are nearing completion. The authorities must reinforce the governance framework and return to the private sector the stakes in banks that are under the government’s control at an early time. The authorities are reforming the insolvency and non-performing loan resolution frameworks, to facilitate the repair of balance sheets and restoration of credit growth.
“Public debt is projected to remain high well into the next decade. The assurances from Greece’s European partners that they will consider further measures and assistance, if necessary, to reduce debt to substantially below 110 percent of GDP by 2022, conditional on Greece’s full implementation of all conditions contained in the program, are welcome. Their continued commitment to provide adequate financial support to Greece during the life of the program and beyond until it has regained market assess, provided that Greece complies fully with the program, is also essential.”