IMF Report on Greece Shows Contingency Fiscal Measures are Unavoidable

The International Monetary Fund report on the progress of the Greek economy in 2016 and in subsequent years shows that contingency fiscal measures will be necessary for the country to reach its bailout program targets.

According to the final document to be presented Monday at the IMF board meeting, the Fund’s head for the Greek mission, Delia Velculescu, sees growth of 0.4% of GDP but only a 1% primary surplus, half of what Greece estimates to be at the close of last year’s budget.

The IMF is less optimistic about the course of the Greek economy compared to what European creditors see after 2017. The Fund does not see primary surpluses above 1.5% after 2018. Extremely pessimistic are also the estimates on unemployment, seeing single digits after 2040.

For 2017, the IMF sees 2.7% growth under the condition that Greece will implement all bailout program prerequisites and join the European Central Bank’s quantitative easing program that will quickly eliminate capital controls (the IMF team proposes keeping them for another year), and that repayments of overdue public debts to the private sector will accelerate.

However, from 2018 and on, the IMF forecasts are less optimistic than those of the European Commission and Greece. For 2018, growth will go down to 2.6%, in 2019 will go to 2.4% and 2% in 2020.

Regarding unemployment, the IMF report finds structural problems in labor predicts it will go down gradually, but will remain at double-digit levels until 2040.

In 2017, the IMF predicts that Greece will have to apply the contingency fiscal mechanism (the “cutter”) because it will not be able to reach the 1.75% primary surplus target. Specifically the Fund’s report estimates that the 2017 primary surplus will be 1%. The cutter will likely apply in 2018 as well, since the estimate is that Greece will reach a 1.5% primary surplus, far from the 3.5% that is the target set.