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IMF: Greece Will Need 25 Billion Euros in 2015-2016

IMFThe IMF has estimated that Greece’s financial needs in 2015-2016 will amount to approximately 25 billion euros.
The announcement was highlighted in the IMF’s bi-annual “Fiscal Monitor” report, which was released yesterday. 2015 in particular will see Greece strapped for cash, requiring an estimated 18 billion euros, or 10% of current GDP.
What does this mean for Greeks? Namely that, should the Greek state fully commit to terminating its support programs with international lenders, Athens will have to fill its financial holes by turning to the markets.
The report does, however, estimate that this gap will be greatly reduced in 2016 to around seven billion euros, or 4.3% of GDP, owing to the decrease in Greece’s deficit and debt servicing costs.
The primary surplus
At the same time, the Fund believes that Greece will achieve its primary surplus target for both 2015 and 2016 (3% and 4.5% of GDP, respectively), as well as 2017 (4.5% of GDP).
Specifically, the IMF forecasts a Greek primary surplus of 1.5% of GDP this year, 3% of GDP in 2015 and 4.5% of GDP in 2016. It expects a reduction of the budget deficit to 2.7% of GDP in 2014 to 1.9% of GDP in 2015 and 0.6% in 2016.
Taking into account Greece’s growth rates, the IMF puts the adjusted primary surplus of Greece at 5.4% of GDP this year, 5.7% of GDP in 2015 and 6.1% of GDP in 2016. The report further estimates that the adjusted balance will amount to 1.6% of GDP in 2014 and 1.2% of GDP in 2015.

Income and Debt

The general government revenue as a percentage of GDP will rise to 44.6% in 2014, declining to 43.2% of GDP in 2015 and 42.4% in 2016. The general government expenditures as a percentage of GDP will rise to 47.3% in 2014, while it is expected to decline to 45.1% of GDP in 2015 and to then rise again to 43% in 2016.
Finally, Greece’s debt (general government) is expected to decrease from 174.2% of GDP in 2014, to 171% of GDP in 2015 to 160.5% of GDP in 2016.
The IMF has further predicted that Greece will succeed its growth target for 2015 – 2.9%, which is reflected in the draft budget recently tabled by the Government in Parliament.
Critically, the Fund disputes the Greek government’s prediction that it will achieve a reduction of 168% of GDP in 2015, arguing that it will only be capable of 171%.
Unemployment
Among other things, the Fund finds that, in developed economies, youth employment can be enhanced by a “carefully planned” reduction of social security contributions paid by employers for new workers.
It further notes that targeted tax cuts for certain workers may have a positive impact in fighting unemployment, while it adds that fiscal policy can help alleviate the financial burdens of labor reforms and can also help compensate workers who suffer the consequences of labor reform.
The Fund report comes just days before the meeting of Finance Minister Gikas Hardouvelis, Bank of Greece Governor Yiannis Stournaras and IMF Director Christine Lagarde in Washington, where the issue of Greek debt was the key topic of conversation.

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