IMF Says High Primary Surplus Holding Back Greek Recovery

Αssociated Press

(AP Photo/Cliff Owen, FILE)

While Prime Minister and New Democracy leader Kyriakos Mitsotakis has pulled back from his hope to get the country's creditors to set a lower primary surplus, a slow recovery is being impeded by that requirement, the International Monetary Fund (IMF) said.

The IMF took part in two first bailouts of 240 billion euros ($262.58 billion) that began in 2010 but not a third for 86 billion euros ($94.09 billion) under the former ruling Radical Left SYRIZA in the summer of 2015.

The three rescue packages ended on Aug. 20, 2018 but Greece still hasn't been able to make a full return to the market beyond a couple of test bonds that sold for well above the interest rate for the bailouts.

The Troika of the European Union-European Central Bank-European Stability Mechanism (EU-ECB-ESM) will have envoys monitoring the performance of the Greek economy for years during the payback period to make sure fiscal targets are met, including the obligation of 3.5 percent of the Gross Domestic Product (GDP.)

Mitsotakis said that is hindering growth and the IMF agreed, the news agency Reuters said, adding that a lower goal is needed for a sustainable economy and a social recovery too with workers, pensioners and the poor taking the brunt of brutal austerity measures for 9 ½ years.

The 3.5 percent primary surplus – which doesn't include interest on the debt, the cost of running cities and towns, state enterprises, and some military expenditures, nor the effect of holding back payments to those owed money by the state – will drop to 2.2 percent after 2022.

While the government said it would meet the requirement for this year the IMF said that a lower primary balance path should be agreed, “given ample economic slack, critical unmet social spending and investment needs and to accommodate spending that would create synergies with stepped-up reforms,” but didn't set its own goal.

Growth is expected at around 2 percent this year and next, the IMF said, warning that long-term debt sustainability was not assured especially with banks buried under a mountain of bad loans, including those owed by New Democracy and political parties.

“Fixing the banking sector, currently a misfiring engine of growth, is a top priority,” the Fund said.

“These and other factors leave Greece vulnerable to a range of external and domestic shocks.”

Despite accelerating major projects stymied by the former ruling Radical Left SYRIZA the new conservative government has an “uphill battle,” the IMF said.

“Much of the needed structural transformation of the Greek economy still lies ahead,” the IMF said, urging Athens to liberalize product markets and closed professions further and push through reforms to become more competitive.

Other recommendations included broadening the tax base as only a relatively small segment of Greeks pay taxes with many wealthy hiding their money in secret foreign bank accounts to avade taxes and getting away with it.