The IMF’s latest review of Greece’s debt position was surprisingly pessimistic, Eurogroup President Jeroen Dijsselbloem said on Feb. 7, again ruling out the eurozone granting the country any write-down on its debt.
Leaked in late January, the International Monetary Fund report called Greece’s long-term debt commitments unsustainable.
“It’s surprising because Greece is already doing better than that report describes,” Dijsselbloem – who chairs meetings of euro zone finance ministers – told Dutch television.
He said Greece’s creditors, which include both the IMF and euro zone states, would be prepared to ease the terms of debt repayments further if it continued to cooperate on reforms.
“At the end of the current (bailout) program in mid-2018 we’ll look again to see what’s possible and what’s necessary. But not earlier.”
But he ruled out any relief on principal debt.
Downplaying divisions between the euro zone and IMF over the program, Disselbloem said both agreed further pension and tax reforms were needed.
“So it’s not like the IMF is saying ‘leave the Greeks alone now and give them debt relief’,” he said.
Greece ‘needs to lower pensions, cut tax rates’
Greece needs to reduce the proportion of its budget spent on “unaffordable high” pensions which are paid for by high tax rates to stimulate economic growth, the IMF said on Feb. 8.
Releasing the full staff report from its first annual review of Greece’s economic policies in nearly four years, the IMF said that Greece instead should work to broaden its tax base and reduce tax rates, while providing more targeted spending to support the poor and other essential public services.
“We are saying that Greece needs to take some fairly difficult decisions to make its budget much more growth-friendly,” IMF European Department Director Poul Thomsen told reporters on a conference call.
He said that too many Greek households are exempt from taxation under current policies, while spending on infrastructure, capital investment and other critical needs has been cut to very low levels in an effort to meet fiscal targets under the country’s current bailout program. Such investments and resources are needed to help modernize Greece’s economy, he added.
Under the constraints of the Greek government’s third financial bailout since 2010 and an aging population, the country’s long-term economic growth is only expected to reach about 1 percent, the IMF said in the report.
The Fund also reiterated its longstanding view that Greece’s debt is unsustainable, even if all of the Fund’s prescribed reforms are implemented, and debt relief from European lenders is required.
