The IMF is warning about the dangers of the electoral pledges of the government for the Greek economy and its competitiveness.
In its first report since Greece completed its last bailout memorandum in August, the IMF stresses the danger that prospective Council of State decisions ordering the return of slashed wages and pensions could derail the economy.
Regarding non-performing loans, the IMF report said that the government should bolster its legal arsenal to allow a reduction of NPLs on private sector terms before thinking about state subsidies. It also warns against measures that would corrode the culture of debt payment and insists that internal bank governance should be bolstered.
The IMF also insists on lowering the tax-free threshold as planned in 2020, so that income tax brackets can be lowered.
The IMF is also demanding an emergency plan to confront the prospect of thousands of court decisions ordering the reversal of memorandum-era cutbacks.
Such rulings could result in a one-off fiscal cost of 9bn euros plus an additional expenditure of 1.5bn euros annually.
The report notes that the rescinding of legislated pension cuts results in a cutback of positive fiscal policies.
Five problem areas
The report cites five specific fiscal dangers for the Greek economy.
- Reform fatigue which could lead to backpedaling on reforms due to electoral pledges
- Delays in cleaning up banks’ balance sheets
- Larger than expected negative consequences for growth from high primary surpluses and delays in investment due to political uncertainty.
- A rapid deterioration of global economic conditions
- A rise in international protectionism and in commercial wars