The International Monetary Fund, one of Greece’s chief lenders, has released a report praising the country for using austerity to drive down its debt and deficit and increase competitiveness, but said that it’s still woefully short of fulfilling other reform, such as prosecuting tax chaets who owe more than $70 billion, and firing public workers instead of waiting for them to retire.
Greece is in a sixth year of a deep recession, with pay cuts, tax hikes and slashed pensions demanded by the Troika of the European Union-IMF-European Central Bank creating a record 27.2 percent unemployment rate. Tax collections are still far off the mark despite big tax hikes as Greeks have slowed spending almost to a standstill.
The report calls Greece’s reduction of its deficit over the past four years “exceptional progress … by any international comparison” and notes that it has been helped by “unprecedented support” from its European partners, which have lent it some €173 billion ($226 billion) over the past three years, a sum equal to almost three quarters of the country’s Gross Domestic Product.
Greece has also improved its competitiveness by drastically reducing both its current account deficit and labor costs through a series of “far-reaching labor market reforms (that) have helped to realign … wages and productivity at the enterprise level.” It has also kept its financial sector stable “despite large losses associated with the debt restructuring” that took place early last year and hurt the banks that had amassed large amounts of Greek debt, the report added.
But it also noted that Greece has been suffering from a “much deeper than expected” recession that has seen its economy shrink by over 20 percent. An IMF official had earlier said that the agency was far off base in estimating the depth of the recession and blamed it on austerity.
The IMF admitted that fiscal progress “has been achieved primarily through recessionary channels,” in big spendingh cuts, deep wage cuts and rising taxes, “with unequal distribution of the burden of adjustment” and said the government has done too little about it, blaming the country’s failure to tackle tax evasion, open up closed professions and shrink the bloated public sector.
The report notes that “the rich and self-employed are simply not paying their fair share” in taxes. It says that “substantial technical assistance (by Greece’s creditors) has helped give the tax administration the technical tools it needs to succeed,” but that tax collection goals set by the government are “very ambitious” and won’t be met until the tax authorities become making tax authorities more independent from “what is still pervasive political interference.”
The report urged Greece to break “the taboo against mandatory dismissals” in the public sector and warned that relying on voluntary retirements to reduce the number of civil servants will not be enough. It also says the government must “gear up” job creation and income support programs, by making more use of EU funds, to tackle the exceptionally high unemployment rate, nearly 60 percent among youth under 24.
Finally, the report noted that Greece’s European partners may be willing to further reduce the debt by forgiving more of it, like they did in 2012, or providing more low-interest aid — the report calls it “significant exceptional support on below-market terms” — in order to help it lower its debt from 156.9 percent of GDP at the end of 2012 to “substantially below 110 percent … by 2022.”
“While it will yet take some time for the country’s situation to fully normalize, the government of Greece has come a long way in its adjustment effort,” the report concludes.