FRANKFURT (MNI) – The Greek government’s economic program has made
further progress towards achieving fiscal sustainability and creating
the conditions for sustained economic growth, staff teams from the
European Commission, the European Central Bank and the International
Monetary Fund said Friday.
However, major reforms are still needed “to build a critical mass
necessary to secure fiscal sustainability and economic recovery,” the
teams said in a press release.
Following is the verbatim text of the statement, published
following the third review of the government’s program after a mission
in Athens from January 27 to February 11:
“The objectives underpinning the program are to restore fiscal
sustainability, safeguard financial sector stability, and boost
competitiveness to create the conditions for sustained growth and
employment. Maintaining social fairness in shouldering the burden of
adjustment in the program also remains of paramount concern and this
will continue to guide the direction of policies in the period ahead.
“Our overall assessment is that the program has made further
progress toward its objectives. While there have been delays in some
areas, the underlying fiscal and broader reforms necessary to deliver
the programs medium-term objectives are being put in place. However,
major reforms still need to be designed and implemented to build a
critical mass necessary to secure fiscal sustainability and economic
recovery. Regarding the outlook, the recession has to date been close to
what was anticipated. Underlying inflation has remained low in the face
of rising commodity prices. Downward movement of unit labor costs should
support gains in competitiveness. Encouragingly, exports have performed
well recently. We continue to expect the economy to stabilize late in
2011.
“In the fiscal area, against the sharp macro headwinds, the
authorities delivered a 6% of GDP fiscal adjustment in 2010, reducing
the deficit to about 9.5% of GDP. This is an impressive achievement, but
some tensions were evident in budget implementation, in particular
shortfalls in revenue collections, and problems with spending control.
The program has been designed to address these problems, and the work is
progressing.
“The government has begun to specify a medium-term budget strategy,
which will define time-bound actions to realize the full fiscal
adjustment through 2014. The reforms are complex and cover among other
issues taxation, health, public employment, and state enterprise
reforms. The government is appropriately allowing time for consultation
with social partners before moving beyond the design phase to begin
implementation. The governments full commitment to this complicated
process of institutional change, not least determination to resist
vested interests, will be critical to success.
“Concerning financing, the government continues to work toward
securing a gradual return to bond markets at affordable interest rates.
Strong program implementation, with financial support from the
international community, remains key to achieving this. It is equally
important that the government notably scales up its privatization
program, and more generally realizes better returns from its extensive
portfolio of assets. Work is proceeding to establish a comprehensive
inventory of the governments real estate assets, and to define a phased
action plan.
“As to the financial sector, tight liquidity and rising
non-performing loans are putting strains on the banking system and
credit is contracting. Encouragingly, private banks have recently
enjoyed some success in raising capital. It is essential that the
government makes progress in addressing the stability and efficiency of
the banks under its control. The Eurosystem has been a key source of
liquidity support for the system, and this is allowing banks to
gradually move towards a sustainable medium-term funding model. The
Financial Stability Fund is available to provide support to banks in the
system, if needed.
“Structural reforms are making progress. Legislation covering
aspects of the labor market, the liberalization of closed professions,
health care reform, licensing, and the competition authority has either
been passed, or soon will be. The authorities focus must now be on
implementing these laws, to make sure the new frameworks are effective
as soon as possible. To secure economic recovery, early progress on
structural reforms remains critical. The government must ensure that
reforms are sufficiently ambitious and comprehensive to tackle the deep
seated structural challenges facing Greece. The next steps will focus
on, among other things, reviving the tourist industry, removing
administrative barriers to exports, and strengthening public
procurement.
“Next Steps: Approval of the conclusion of the third review will
allow the disbursement of E15 billion (E10.9 billion by the euro area
Member States, and E4.1 billion by the IMF). The mission for the next
program review is scheduled for May 2011.”
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