IMF urges decisive action
Fund sees need for more pension cuts and greater debt relief than considered so far
The International Monetary Fundcalled for Greece to cut pensions and taxes and for its lenders to provide significant debt relief so the country can make a convincing exit from the crisis.
In its annual report on the Greek economy, following so-called Article Four consultations in Athens, the Fund described the country’s pension system as “unaffordable” despite recent reforms. It argued that the pension system’s deficit remains too high at 11 percent, compared to a 2.5 percent average in the eurozone.
The Washington-based organization also said that Greece’s tax credit system was too generous, exempting around half of salary earners compared to a euro area average of 8 percent.
The IMF proposes cuts in taxes and social security contributions, arguing that recent increases created incentives for undeclared work. “Greece needs less austerity, not more,” said IMF mission chief Delia Velculescu as she presented the report in a teleconference with journalists.
The Fund, whose role in Greece’s third bailout program has yet to be clarified, also stressed the need for European lenders to deliver on their debt relief pledge as “growth prospects remain weak and subject to high downside risks.”
“Even with full implementation of this demanding policy agenda, Greece requires substantial debt relief calibrated on credible fiscal and growth targets,” the report said.
“Further debt relief will be required to restore sustainability, going well beyond what is currently under consideration, and it should be calibrated on realistic assumptions about Greece’s ability to generate sustained surpluses and long-term growth,” the report said.
The IMF delivered its findings as the government submitted to Parliament its latest multibill, which contains draft legislation to complete several of the bailout milestones remaining before Athens can claim its next sub-tranche of 2.8 billion euros.
The legislative package contains provisions regarding pension reforms, the transfer of public organizations (DEKOs) to the new asset fund and the energy sector. MPs are due to vote on it on Tuesday. The government hopes to have all the milestones, including those that do not need new legislation, completed by Thursday, when the Euro Working Group is due to meet to prepare for the October 10 Eurogroup.