Greece Makes Progress, But More Effort Needed to Restore Growth

Substantial progress on fiscal and current account adjustment

Further reforms needed to restore growth, reduce unemployment, increase fairness

Recapitalization and restructuring of banking sector almost complete

Poul Thomsen spoke to IMF Survey on the publication of the Fund’s annual health check of the Greek economy, which was approved by the IMF’s Executive Board on May 31, together with the third review of the IMF’s €28 billion loan under the Extended Fund Facility.

IMF Survey: Greece has made significant progress in reducing its economic imbalances. Just how much has been achieved?

Thomsen: Greece has made very substantial progress in reducing its fiscal imbalances. It has undertaken a fiscal effort of close to 15 percent of GDP in underlying adjustment. This is large by any international comparison. And this year, Greece is on track to reach primary balance, so that spending—before you include interest payments—is equal to revenues. So, Greece has come to a much better situation on the fiscal side. Similarly, on the external current account side, imports have been dramatically reduced, bringing over 10 percentage points of GDP improvement in the external current account position. Competitiveness has also improved. There is still a competitiveness gap, but it’s been substantially reduced.

IMF Survey : What else is needed to restore growth and also bringing back jobs?

Thomsen: The big question is indeed, where growth will come from. This will require flexibility in the economy to be able to reallocate resources from low-productivity to high-productivity activities, to be able to hire workers into higher-productivity jobs. Key to achieving this is structural reforms to enhance productivity as well as reforms to tax and public administration.

There have been pervasive restrictions in professions, product markets and services markets, which have limited entry into various sectors and kept prices high. There are restrictions, for example, to become a tourist guide.

Another example is that many over-the-counter products are allowed to be sold only in pharmacies where there is a guaranteed margin, which keeps prices high for consumers. These products should be available at any store, and pharmacy margins need to be liberalized. The authorities have begun to take some steps at lowering entry barriers, but those steps have not yet achieved the desired outcome.

In the area of tax collection, Greece has been successful in raising taxes on...