Greece is broadly on track in implementing its fiscal adjustment program, the EU/IMF mission in Athens said Tuesday. However the mission warned that challenges remain.
“Our overall assessment is that the program remains broadly on track. The end-September quantitative criteria have all been met. While challenges remain, significant progress has been made, particularly in reducing the fiscal deficit,” the European Commission, the IMF and the European Central Bank stated in a joint statement.
Greece’s lenders expect the economy to begin turning around in 2011. They noted that new measures have been agreed to broaden tax bases and eliminate wasteful spending. The spending is particularly in the areas of health spending, state enterprises and tax administration—which has instruments now coming into place to strengthen compliance.
“The government’s medium-term budget strategy paper, to be discussed in the next review, will specify time-bound action plans for crucial structural reforms needed to achieve the remaining fiscal adjustment, and to do so in a socially balanced way,” they said, noting that in the financial sector, the program has been effective in supporting stability.”
Still, they stress the need for structural reforms and warn: “while significant progress has been made, with some landmark reforms—including pension reform—the program has now reached a critical juncture. Many of the reforms that are necessary to transform Greece into a dynamic and export-driven economy require skillful design and political resolve to overcome entrenched interests.”
“The challenge now is to implement an ambitious schedule for these next-stage reforms, including:
• Aligning wages more closely with firm-level productivity, including through reform of arbitration and collective bargaining systems.
• Opening up access to services, trades, and professions.
• Unlocking the potential of Greek industries by cutting red tape and barriers to entry, and privatizing state assets.”
In a news conference on the conclusion of the assessment of Greek efforts, representatives of the three bodies said that they were confident Greece would be able to return to international markets before the end of the three-year bailout. Several options were available to help the country if it found itself in a bind, the Associated Press reports
”We are going to have a significant hump in debt service repayment as soon as the program ends,” said IMF Mission Chief for Greece Poul Thomsen.
“We are confident that Greece will be able to return to the market during the program period,” he said, but added that it was “admittedly a question” as to whether Greece would be able to tap the market for the full amounts needed to refinance its existing debt and repay the bailout loans.
“We are aware that this is an issue that raises some concern in the markets. We have various options for dealing with it,” Thomsen said.
One option would be to allow a longer repayment period for the rest of the rescue loan financing, or to give follow-up loans.
“If there proves to be a question we stand ready to exercise some of these options. But there has been no decision taken,” Thomsen said.
The IMF board and the fourteen Eurozone lenders will decide in December whether they will clear the third trance of the 110 billion Euro package for Greece on the assessment made by the mission.
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