The International Monetary Fund, with its report on Article 4 of the Greek economy, appears quite pessimistic in its forecasts for Greece’s growth rate, surpluses and public debt. Meanwhile, it insists on the need to reduce the tax-free threshold, the 13th pension and personal scores for old retirees to be cut, and the protection of primary residence to be abolished!
These predictions could explain the Greek government’s dissatisfaction as reflected in the letter from the Greek representative Michalis Psalidopoulos to IMF, in which he stresses that the report focuses too much on legacies of the past.
Debt and surpluses
Moving on, the new viability analysis concludes (baseline scenario) that in 2028 debt will be about ten points higher compared to previous forecasts, at 145% of GDP versus 185% of GDP in 2018. Behind this downward trend hide pessimistic forecasts for declining surpluses and weak growth rates.
This year the Fund predicts that the surplus target will be met, but not next year. It estimates that the primary surplus in 2020 will account for 3.1% of GDP, with growth rate accelerating from the projected 1.8% this year to 2.3%, well beyond the government’s projections (2.8%). It gets worse. The Greek economy growth rate is projected to be fixed at 1.4% in 2022 and then at 0.9% in the 2023-24 two-year period.
As for surpluses, unless the targets are revised and the Fund’s forecasts are at last confirmed, the future looks bleak. The primary surplus, from 3.7% of GDP this year drops to 3.1% in 2020, then further dips at 2.7% in 2021, 2.6% in 2022, 2.4% in 2023, before landing at 2.1% of GDP in 2024.
Given these data, the IMF estimates that in the long run debt sustainability is not guaranteed. Based on the latest forecasts for lower surpluses and weaker growth, it estimates that public debt, from 185% of GDP last year, will fall to 145% of GDP in 2028, and this forecast accounts for a 10-point deterioration compared to the one last March.
The Fund also calls for the tax base to be expanded by lowering the tax-free threshold, so that there is room for substantial reduction in direct taxes, for the pre-empted 13th pension to be cancelled, personal scores of retirees to be abolished alongside primary residence protection, and for new measures to be introduced, which will substantially reduce the banks’ red loans. /ibna