Greece needs further cuts to pensions and a fairer distribution of the tax burden but should see its economy begin to recover from the following year, the International Monetary Fund (IMF) concluded on Friday.
“In light of the impressive fiscal consolidation to date Greece, does not require further adjustment to reach and maintain unprecedented primary surpluses, which would not only be detrimental to growth, but are also difficult to sustain in view of likely pressures given persistently high unemployment. However, the composition of the adjustment, which has relied on tax increases on narrow bases, adds significant risks to the budget and deters investment and employment,” the IMF said, in the Article IV Consultation report published on Friday.
The head of the IMF mission to Greece Delia Velculescu, during a conference call, predicted the start of economic recovery in 2017 and repeated that the IMF will only participate with new funds in the Greek program if there is a substantial relief of the country’s debt.
The IMF urged a fiscally-neutral rebalancing of policies over the medium term toward lower pensions and a fairer distribution of the tax burden so that the public sector is able to provide adequate services and social assistance to vulnerable groups, while creating the conditions for investment and growth.
“Spending remains exceedingly focused on unaffordable pensions provided to current retirees, which crowds out other needed social spending to protect vulnerable groups, including the unemployed,” the report said.
It also urged the government to focus more on fighting tax evasion, noting that debts toward the state sector had now reached 70% of GDP, the highest percentage in the Eurozone, while tax collection rates had fallen to less than 50%. It also criticized excessively generous tax exemptions for middle incomes, which it said resulted in a shortage of revenues necessary welfare spending on the most vulnerable groups, combined with high taxation rates that acted as a disincentive to working in the formal economy . It proposed a reduction in income tax rates combined with a reduction of overly generous tax exemptions.
It once again raised the issue of debt relief for Greece, estimating that this was necessary even with a full implementation of the current program, and noted that the humanitarian crisis caused by the flow of refugees to Europe has further increased the burden on Greeks, who needed the full support of their European partners.
“Even with full implementation of this demanding policy agenda, Greece requires substantial debt relief calibrated on credible fiscal and growth targets . Despite very generous debt relief from private and official creditors, debt has continued to rise, reaching unsustainable levels,” the report said