Greece was commended by European Union and International Monetary Fund experts on Wednesday for making a good start in implementing the fiscal and structural economic reforms needed to emerge from its debt crisis.
“The economic adjustment programme appears to be acting as a catalyst, including in areas where reform efforts have been lacking for many years,” the European Commission, the European Central Bank and the IMF said in a joint report.
Greece’s eurozone partners and the IMF approved a €110bn rescue plan for Greece in May on condition that the Socialist government in Athens should swallow its prescribed medicine, including sweeping cuts in public expenditure and reforms to labour markets, pensions and the tax system.
The EU authorities and the IMF hope that these measures will rebalance the economy and avert the risk that Greece will seek to restructure its debts – a step rife with danger for Greece’s European bank creditors and the eurozone’s stability.
After visiting Athens on June 14-17, the EU and IMF experts concluded that Greece’s reform programme was “broadly on track”, but they also identified areas in which more progress was required, according to the report.
In particular, Greek consumer price inflation rose to 5.3 per cent in May, its highest level since 1997 and far above the average eurozone rate of 1.6 per cent.
The EU and IMF experts said the rise in Greek inflation had been caused largely by several increases in value added tax and excises between January and May.
“The large impact of indirect tax increases on inflation, in the context of a severe recession, provides evidence of inflexible domestic markets, requiring significant product market reforms,” the experts said.
They added, however, that price pressures were likely to abate substantially in the second half of this year as economic activity continued to slow.
The report illustrated the depth of Greece’s recession by stating that unemployment had already risen above 12 per cent of the workforce, new building permits had slumped by 20 per cent between January and March, and the current account deficit had risen to 16.7 per cent of gross domestic product in the first quarter of the year.
Greece’s economy was expected to contract by 4 per cent this year, in line with IMF forecasts when the recovery programme was drawn up, the report said.
It praised Greece’s efforts to control public spending, saying that the total expenditure of the state budget had fallen by 13 per cent so far this year – more than the target agreed with the EU authorities and the IMF.
However, the report expressed concern that Greece’s social security funds had already absorbed more than half their budgetary appropriations for this year and might need additional state funding.
The experts also said they had not managed to acquire complete information on the financial condition of sectors such as healthcare, in which cost overruns and accumulation of arrears used to be pervasive.
On the other hand, Greece had made significant progress in preparing measures against tax evasion and in setting up a single payment authority for public wages, the report said.
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