Daily Management Review

IMF’s Latest Recommendations Could be the Last Chance for Greece


01/29/2017




IMF’s Latest Recommendations Could be the Last Chance for Greece
The latest IMF report, which was delivered to the Fund's board members for consultation, reveals that more turbulence lies ahead for Greece - the debt-ridden European nation, despite decisive action proposed by the International Monetary Fund to ease the country’s financial burden, reported CNBC.
 
The report will be discussed at the IMF's board meeting on Feb.6 according to IMF deputy spokesman William Murray.
 
Further cuts to pension programs and an increase in income taxes are among the reforms they are pressing for. 

Relative to the euro zone and remain prosperous and competitive, Greece will be unable to narrow the gap in its real per-capita income without a substantial pace of reforms. Greece is faced with either risking the IMF dissolving support of the Greek financial program or proceeding with these necessary reforms until Feb. 20, demands the euro zone's finance ministers based on the above argument.
 
Greek banks are exposed to the risk of nonperforming loans and have a weak capital structure, the IMF claims in the latest report. The backloaded NPL reductions "do not appear consistent with the Greek authorities' ambitious investment and growth assumptions” and the Greek banks' current strategies require a reduction in the aggregate nonperforming loans ratio to 48, 42 and 34 percent by 2017, 2018 and 2019.
 
Lowering of the threshold of tax-free income and the push to rebalance the policy mix toward growth-friendly and equitable policies are included in the measures included in the IMF report.
 
"Greece's revenue yields lag behind peers as high marginal tax rates applied on narrow bases encourage tax evasion, discourage labour participation in the formal economy and provide incentives for firms to relocate to low tax neighbouring countries," the IMF report said.
 
In recent years Greece’s pension has fallen by 40 per cent and the IMF supports a further reduction to Greece's pensions in addition. "While recent pension reforms have helped address expected long-run pressures from population aging, pensions for current retirees remain unaffordably high," the report stresses. Claiming that "the Greek authorities did not see a need to reduce pension spending or the income tax credit," the IMF is very critical at this point.
 
Seeking greater debt relief for Greece, in addition to Greece, this hardening stance is being adopted by the IMF across the euro zone countries.
 
Yet, a debt sustainability analysis included in the report reveals that Greece's public debt is "highly unsustainable," even with with full implementation of policies agreed to under the ESM program. If Greece is unable to replace highly subsided official sector financing with market financing at rates consistent with sustainability, Greece's public debt and financing needs will become "explosive" in the long run, it further emphasizes.
 
Greek debt will rise reaching around 275 percent of GDP by 2060, projects the IMF as it says that Greek debt will reach 170 percent of GDP by 2020 and 164 percent of GDP by 2022.
 
"While the Eurogroup has agreed to lock in the interest rate on some European loans, the scope of the measures contemplated is likely much less that what is required to ensure sustainability under IMF's baseline scenario," notes the IMF report.
 
 (Source:www.cnbc.com)






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