Strong growth of the Greek economy this year at 3.5% despite the war in Ukraine provides for the International Monetary Fund (IMF) in the report containing the conclusions of its mission in the context of the consultation referred to in Article 4.
«GDP returned to its pre-pandemic level in 2021, reflecting a faster-than-expected recovery in tourism, growth in private consumption as well as households began to use the savings they had accumulated during the pandemic and strong private investment supported by increasing foreign direct investment. The strong fiscal response, accommodative monetary policy and substantial EU support have been crucial to boosting the recovery,» the Fund says.
The Fund's new forecast is one percentage point lower than the previous one, before the Russian invasion of Ukraine, while referring to uncertainties and downside risks «that continue to cloud the outlook».
For inflation, the IMF forecasts it to reach 4.5% on average this year, due to the longer and longer lasting increase in energy prices, to fall back to 1.9% in the medium term.
The IMF speaks of «commendable progress» in addressing past problems, despite the difficult environment. It refers in particular to the reduction in banks“ NPEs under Hercules and the improvement in the liquidity of the banking system, the steady decline in unemployment and progress in reforms in several areas, such as digitisation, privatisation and improving the fiscal policy mix by strengthening spending on health and public investment. It also refers to the completion of the early repayment of the loans taken by Greece from the IMF.
For government debt, the Fund expects it to decline, noting that its refinancing risks appear manageable in the medium term. «The debt-to-GDP ratio is expected to fall below pre-pandemic levels by 2023, reflecting strong growth, fiscal adjustment and higher inflation,» it said.
The IMF recommends the government to pursue an accommodative fiscal policy this year, but considers that the primary deficit should be below 2% of GDP. For 2023, it recommends targeting a primary surplus, gradually increasing to reach 2% of GDP by 2027.
Regarding the fiscal measures, recommends support measures in response to high energy prices should be temporary and targeted at vulnerable groups, while noting that greater priority should be given to protecting those receiving the minimum guaranteed income, by increasing its level at least to the level of inflation, in order to provide a safety net against negative shocks, such as the current energy crisis.
It also recommends cancellation of plans for permanent cuts in social security and solidarity contributions for all taxpayers or at least their financing by other measures.
On pensions and public sector wages, he believes that spending pressures should be curbed. On pensions in particular, he says that their freeze for this year and the planned formula for their adjustment from next year should apply.
The IMF mission encouraged the government to proceed with a a prudent increase in the minimum wage that will maintain the competitiveness gains that the Greek economy has.
The Fund welcomed the rapid clean-up of large banks“ balance sheets, but stressed that problems remain and that there is a need to further reduce red loans by implementing the new bankruptcy law, improving banks” credit risk management frameworks and developing sustainable long-term restructuring.
He also says that more efforts must be made to strengthen banks“ capital and replace the capital they have lost due to the securitisation of their ”red" loans, which in the short term, he notes, may require them to undertake capital increases.
