Amid weaker than expected economic conditions, Greece still isn’t meeting its fiscal targets European policymakers conclude, nevertheless further bailout funding will likely be provided.
The European Commission, European Central Bank, and International Monetary Fund have released a review of their latest mission to Greece, which finds that the recession will be deeper than was anticipated in June and a recovery is now expected only from 2013. It also says there is no evidence yet of improvement in investor sentiment “in part because the reform momentum has not gained the critical mass necessary to begin transforming the investment climate.”
On the fiscal front, they note that the government of Greece has achieved a major reduction in the deficit since the start of the program despite a deep recession. “However, the achievement of the fiscal target for 2011 is no longer within reach, partly because of a further drop in GDP, but also because of slippages in the implementation of some of the agreed measures,” it says.
For 2012, it believes that the additional measures announced by the government, in combination with a determined implementation of the fiscal strategy, should be sufficient to bring the fiscal program back on track and ensure that the deficit target of €14.9 billion will be met. However, looking to 2013-2014, additional measures are likely to be needed to meet program targets, it says.
It notes that progress has been achieved towards privatizations with the creation of a professionally managed privatization fund. However, delays in the preparation of the assets for privatization, and to some extent worse market conditions, mean that revenues in 2011 will be significantly lower than expected.
In terms of structural reforms, areas of progress include the transport sector, licensing procedures, and regulated professions. “As overall progress has been uneven, a reinvigoration of reforms remains the overarching challenge facing the authorities,” it says.
“Overall, the authorities continue to make important progress, notably with regard to fiscal consolidation. To ensure a further reduction in the deficit in a socially acceptable manner and to set the stage for a recovery to take hold, it is essential that the authorities put more emphasis on structural reforms in the public sector and the economy more broadly,” it says.
Ultimately, it concludes that the country will continue to receive bailout funds. Once the Eurogroup and the IMF’s executive board have approved the conclusions of this latest review, the next tranche of €8 billion will become available, most likely, in early November, they say.