IMF: Greek economy need even a new memorandum

12 March 2019
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The International Monetary Fund (IMF) sees multiple dangers that could derail the Greek economy, mainly due to judicial decisions regarding the memoranda and the pension cuts.

The IMF’s first post-memorandum report on the country includes even a “bad scenario” that would lead to a new Memorandum!

The IMF wants to prepare a precautionary plan to address the fiscal threats of court decisions. At the same time, it criticizes the increase in the minimum wage and feels the banks are still vulnerable, demanding capital reinforcement and to give priority to measures to reduce bad loans without state aid.

The baseline scenario of the report predicts primary surpluses of 3.5% of GDP by 2022, then a primary surplus of 3% in 2023 and 2.8% in 2024, while noting that Greece intends to repay early its debt to the Fund. However, the IMF technocrats have devoted a special section to a downside scenario in which Greece will have difficulty meeting its financing needs from 2021 and will need drastic fiscal measures, debt restructuring or new financial support, a new Memorandum!

The report estimates the likely budgetary cost of court decisions at 9.4 billion Euros (4.9% of GDP) for retroactive payments, and the additional annual budgetary burden that is estimated may be up to 1.5 billion Euros (0.8% of GDP).

IMF technocrats recognize that “economic recovery in Greece is accelerating and widening”, that “debt repayment capacity is sufficient” and that “the government’s financing needs remain manageable in the baseline scenario,” but adds that “there are still significant weaknesses and rising downside risks” and that “if certain financial risks are confirmed, repayment capacity could face challenges in the medium term”.

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