IMF More Pessimistic on Greece’s Growth Prospects and Debt Path

(Bloomberg) --

The International Monetary Fund forecasts the Greek economy will grow by 2.3% in 2020, below government estimates, with prospects weighed down by stagnant investment, adverse demographics, and low productivity.

“The Greek economic recovery has been disappointing,” the IMF said in its Article IV report on the country. “Sustained and deeper reform implementation, deploying a full range of policy tools, and strong political resolve to tackle vested interests will be necessary to meaningfully boost investment, growth, and social inclusion,” the fund said.

The Greek government wants to push investments to boost the economy and create fiscal space in order to ease austerity. Higher growth will also help to reduce the country’s debt-to-gross domestic product ratio in the coming years. Greece forecasts a growth rate of 2.8% for 2020.

The IMF now sees the debt-to-GDP ratio rising by about 10 percentage points by 2028 to a level that’s higher than it forecast in March 2019 analysis as “lower nominal GDP and primary surplus paths during 2019–25 under current policies more than offset lower projected sovereign borrowing costs.”

Over the longer term, the fund’s view “continues to be that debt sustainability is not assured under a realistic set of macro-fiscal assumptions.” The IMF expects:

• Real growth to average 2.1% in 2019-2020, before gradually declining to 0.9% by the end of the projection period
• Baseline primary balance to be about 1% of GDP lower than in the March analysis on average over 2019-2025
• Revenues from privatization to amount a total 2.4 billion euros ($2.65 billion) over the next 10 years
• Greece to raise from markets 5 to 7 billion euros in 2020-2022 and 9b to 10 billion euros in 2023-2024
• The country to issue government bonds in exchange for the PSI bonds leftover from the 2017 swap (4 billion euros) and part of the outstanding T-bills

Breathing space

To give breathing space, the IMF says Greece’s fiscal targets should be reduced from an annual goal up to 2022 of 3.5% of GDP. “Reducing fiscal targets to create more space for investment and social spending would also support the economic and social recovery,” it said.

The government is also trying to fix the country’s troubled banking sector that’s saddled with the euro area’s highest level of non-performing loans. Lawmakers will vote in the coming weeks on an ambitious plan that foresees the state providing guarantees to lenders to help them reduce bad loans that currently stand at 75 billion euros.

“Despite improvements, bank balance sheets remain significantly impaired and net credit growth remains negative,” according to the IMF. Efforts to resolve the problems should be accelerated as “at the current pace, the recovery of banks’ lending support for investment and growth will take many years.”

To contact the reporter on this story: Sotiris Nikas in Athens at snikas@bloomberg.net

To contact the editors responsible for this story: Chad Thomas at cthomas16@bloomberg.net, Paul Tugwell

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