The International Monetary Fund (IMF) said Greece’s rescue programme has ‘continued to perform well’ and it approved payment of another euro 2.5 billion ($3.3 billion), according to a statement released in Washington today.
The fund said the Greek authorities are ‘to be commended’ for their efforts to implement budget cuts, new economic policies and other reforms. Inflation is falling and the Greek economy is becoming more competitive, the IMF said.
“The overall fiscal adjustment to date has been impressive,” the IMF said. “It is important that fiscal structural reforms be forcefully advanced to ensure a lasting consolidation.”
More reforms are needed to boost potential growth, the IMF said. Greece needs to make additional changes to create new jobs, improve access to professions, and deregulate tourism and retail trade, according to the IMF.
“Market sentiment toward Greece remains volatile,” the IMF said. “The economy is still adjusting and unemployment is rising.”
Today’s announcement brings disbursements so far under Greece’s standby arrangement to about euro 10.6 billion, part of a euro 110-billion rescue package that the IMF and European Union announced in May. The IMF’s share is about euro 30 billion.
Economy struggling
Greece’s economy has been struggling under the crisis, the fund said. Economic indicators point toward ‘continued’ contraction, the IMF said in a staff report accompanying today’s announcement.
“The GDP contraction has been slightly deeper than initially expected,” the IMF said. “Bond spreads remain high owing to another round of Greek fiscal data revisions and financial turmoil in the Euro area periphery.”
The Greek economy is now expected to shrink 4.25 per cent in 2010 and 3 per cent in 2011, compared with previous forecasts of 4 percent and 2.5 per cent, respectively, the fund said.
“Short-term risks to the outlook remain skewed to the downside, but there is upside potential in the medium-term,” the IMF said. “The macroeconomic outlook has weakened slightly.”
The IMF said it was working with EU officials to move Greece’s aid to the fund’s ‘extended fund facility,’ which has longer repayment terms than the ‘stand-by arrangement’ used to fund the current rescue package.
The IMF said Greece’s budget measures have reduced the deficit by an estimated 6 per cent of gross domestic product in 2010.
Banks have ‘enjoyed some recent success’ in raising capital and Greece has ‘necessary tools’ to act as a backstop if necessary.
The next review of Greece’s economic program will be in March, the IMF said.
