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The 9.5% recession this year speaks for itself IMF, instead of at least the 10% predicted six months ago at the beginning of the crisis, based on the examination of Article IV for our country. He points out that “his surprise COVID-19 it interrupted Greece’s modest economic recovery “but admits that” the government’s swift response to the pandemic is commendable. The timely implementation of travel restrictions, a ban on public events, and other social distancing measures have helped stem the initial outbreak of the virus. Compared to other European countries, the per capita incidence and mortality rate remains lowBut the recent increase in reported cases requires attention. The Government’s financial support package is comprehensive, timely and appropriate, consisting mainly of temporary measures within the budget targeting homes and businesses that have been severely affected. “
However, the recession forecast is still higher than the Greek government’s estimate, which places it at 8-9%. What’s worse is that it predicts a slow recovery, just 5% a year for the next two years. In other words, in 2023 Greece will get back to where it was in 2019.
In its report on Greece, the IMF urges the government in 2021 to avoid a sharp fiscal adjustment and to aim for a primary deficit of at least 2% of GDP. It is observed that according to statements by the competent ministers for 2021, the primary deficit in 2021 is expected to be around 0.5% of GDP.
Detailed statement of the conclusions of the IMF staff in the context of the second post-program follow-up mission to Greece
The impact of COVID-19 disrupted Greece’s moderate economic recovery. GDP contracted 7.9 percent in the first half of 2020, a sharp drop from growth of 1.9 percent in 2019, as the lockdown had a severe negative impact on domestic demand and tourism. The unemployment rate has risen sharply since March, despite significant employment support measures. The primary deficit is projected at 63/4 percent as a result of the reduction in economic activity and the stimulus measures adopted by the Government. The government’s swift response to the pandemic is commendable. Early enforcement of travel restrictions, a ban on public events, and other social distancing measures have helped stem the initial outbreak of the virus. Compared to other European countries, the per capita incidence and mortality rate remain low, but the recent increase in reported cases requires attention.
The Government’s financial support package is comprehensive, timely and adequate, consisting mainly of interim budgetary measures targeting severely affected households and businesses. The emergency response of the European Union (EU) and the European Central Bank (ECB) has allowed Greece to adopt the necessary fiscal support measures, while the facilities of the Single Supervisory Mechanism (Single Supervisory Mechanism) mitigate the direct impact. of the pandemic in banks. The economy is expected to contract 9.5 percent in 2020, before gradually recovering over the medium term. Tourism’s strong support for the Greek economy makes it particularly vulnerable. The recovery in 2021-22 is expected to lead to an average growth of 5 percent per year, supported by the EU’s Next Generation Resources (NGEU) and a recovery in external demand. As the NGEU program gradually declines, growth is projected to return to its long-term potential of 1 percent.
Significant uncertainties and negative risks continue to hover over the outlook for the economy. A prolonged pandemic accompanied by a permanent decline in world tourism would lead to a significant deterioration in the outlook for the economy, while rapid discovery and mass distribution of the vaccine would help fuel the recovery. Potential government liabilities could materialize through new and existing government guarantees, possible additional support to banks and businesses in an unfavorable scenario, and through ongoing lawsuits against key reforms of the tax reform. A new wave of non-performing exposures (MEA) could emerge in the banking sector after the withdrawal of government support measures and supervisory facilities.
The medium-term capacity to repay Greece’s public debt remains sufficient. This reflects manageable gross financing needs in the baseline scenario, due in part to increased support from the EU and the ECB, as well as a significant liquidity buffer. Following an increase in 2020, Greece’s public debt is expected to decline gradually over the medium term, although it remains at higher levels compared to previous forecasts.
The staff assessment regarding Greece’s long-term debt sustainability remains unchanged and will be reviewed in the context of the next Article IV Consultation. The ability to repay debt would be undermined in the event of significant negative risks, requiring a strong pro-cyclical fiscal adjustment and / or more support from European partners. Maintaining the facilities and making good use of fiscal space should be a short-term priority.
Given the large output gap and to minimize the risk of permanent economic damage from the pandemic, authorities should avoid a sharp fiscal contraction in 2021 and aim for a primary deficit of at least 2 percent of GDP. Budget support must be forward-thinking NGEU resource disbursement (planned for mid-2021), and the fiscal policy mix should be improved by prioritizing health spending, addressing gaps in the Social Solidarity Allocation, and expanding opportunities for recycling workforce. The implementation of public investment should be strengthened to boost the effectiveness of NGEU financing. As the impact of COVID-19 diminishes in the medium term, fiscal support measures for companies should increasingly rely on sustainability assessments.
A wide range of support measures will mitigate and delay the negative impact of the pandemic on banks, but an overall strategy to address long-term weaknesses remains a priority. In addition to supervisory and monetary support from the ECB, interest rate subsidies and mortgage payments adopted by the Greek authorities will help both borrowers and banks during 2020-21. While the provision of state guarantees in bank securitization (Hercules program) is welcome And it continues, it is not a total solution as it leaves a significant volume of MEA on the balance sheets of banks and does not face the low quality of bank capital.
In this context, the Bank of Greece proposal to create an asset management company could be a significant addition to the toolbox. The pandemic could add further pressure to the banking sector and could undermine the improvement in corporate balance sheets over the past decade, requiring effective tools to resolve corporate and household debt difficulties. In this sense, the new draft of the Authority’s Bankruptcy Code is a promising and timely initiative, although its implementation to facilitate restructuring and minimize moral hazard will be crucial for its effectiveness. Structural reforms are ongoing and must be accelerated in areas that can be reliably implemented.
The goals and ambition of the draft National Development Strategy are commendable and could help boost productivity and promote innovation. Promote business simplification and The government’s digital reform also deserves support. Further structural reforms that can be carried out given the current situation, such as the liberalization of product markets, facilitating the participation of women in the labor market (through access to childcare and preschool education, for example), and strengthening active employment policies.
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