IMF urges more help for Greece to ease debt burden

26 Sep 16

Greece’s creditors need to offer more substantial relief options to tackle the country’s €248bn ($279bn) debt mountain, the International Monetary Fund has said.


In a statement published on Friday, the fund made a call for Greece’s creditors to relieve the country’s unsustainable debt burden.

The issue has already sparked tense disagreement between the IMF and Greece’s European creditors, which led to a spat earlier this year that resulted in the fund refusing to participate in Greece’s third, €86bn ($97bn) bailout for the time being.

The fund also reiterated that the targets of the most recent bailout deal, signed last year, are unrealistic, and stressed the need for more practical and sustainable objectives.

“The current targets remain unrealistic, in that they still assume that Greece will attain and sustain primary surpluses of 3.5% of GDP for many decades – despite double-digit unemployment rates until the middle of the century – and at the same time achieve high growth rates,” the IMF said.

“In this context, it cannot be assumed that Greece can simply grow out of its debt problem. Further debt relief will be required to restore sustainability, going well beyond what is currently under consideration, and it should be calibrated on realistic assumptions.”

European finance ministers agreed earlier this year to provide some relief measures that will attempt to keep Athens’ debt repayments below 15% of national income until 2030, and 20% from then onwards.

These include lower interest rates, a “smoothing out” of repayment schedules and possible loan buyouts.

But the most ambitious measures, such as allowing Greece to regain access to profits from the European Central Bank’s bond-buying programme, will only come in to play upon the successful completion of the bailout programme in 2018.

The IMF on the other hand has called for upfront and unconditional debt relief that has been completely implemented by that time.

Last week, it also reiterated its views on “unrealistic” fiscal targets. This refers namely to the objective that Greece reach a 3.5% budget surplus  under the programme by the end of 2018, as required by the country’s European creditors.

Greece does not require further fiscal adjustments to reach and maintain “unprecedented”, “detrimental” and “difficult to sustain” primary surpluses, it stressed.

It highlighted that tax increases on narrow bases add significant risks to the budget and deter investment and employment and that public services have been “cut to the bone”.

“The initial fiscal adjustment was based on important reforms. However, it has become increasingly reliant on one-off and ad-hoc adjustments that could not be sustained, denting policy credibility.”

Greece’s output has declined by 25% and is still declining, unemployment and poverty remain much higher than before the crisis, and growth prospects going forward are weak and subject to risks, according to the fund.

It stressed the need for more growth-friendly fiscal policies and further measures to reduce unsustainable pension payments. Reforms to the tax system should target its preference for the middle class, rather than tax hikes that only serve to disincentivise work in the formal economy.

Meanwhile, complementary efforts to modernise public administration and public financial management should be pursued “with vigour”, it added.

Other areas of concern include the high rate of non-performing loans, and banking sector governance and capital controls, including payment and withdrawal restrictions, which hamper confidence.

The fund’s latest bold intervention comes as it weighs up participating in the third bailout programme, with expectations it will decide by the end of the year. 

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