Greece needs to press ahead with unfinished economic reforms to cut risks to its recovery in the medium term, the International Monetary Fund said on Tuesday in its first report since the country exited its third bailout.
Under the terms of Greece’s exit seven months ago the Washington-based Fund, which took part in the first two bailouts, and its eurozone lenders are continuing to monitor its compliance with economic targets they set.
The IMF expects Greece’s economy to grow 2.4 percent this year and 2.2 percent in 2020 before slowing in subsequent years, it said, reiterating projections it made two months ago.
It continued, stating that “public sector financing needs remain manageable under the baseline due to strong fiscal balances, low debt servicing costs, and a large cash buffer.”
The Fund added in its report that ”vulnerabilities remain significant, and downside risks are rising.”
Among these vulnerabilities, the IMF mentions the legacies of Greece’s financial crisis, such as high public debt, “impaired private balance sheets” and the “widely weak payment culture.”.
The Fund believes that the Greek economy, despite its stable trajectory in growth and recovery, is still vulnerable to increasing external and domestic risks. These include the global growth slowdown and ongoing court cases challenging key reforms and austerity measures that were implemented in Greece between 2010 and 2017.
The IMF played a crucial role throughout the years of the financial crisis in Greece. However, many of the policies it pushed Greece to implement are still considered controversial, as the country suffered a reduction of approximately 25 percent of its GDP between 2009 and 2017.
It should cut taxes to facilitate growth and proceed with a planned broadening of the personal income tax base.
The latter has been expected to kick in next year but the leftist government of Alexis Tsipras, whose term ends in October, has said the measure will be annulled if it wins re-election.
The government has announced austerity-easing measures since the bailout program ended in August, but polls show the conservative New Democracy party is widening its lead over Tsipras’ Syriza party.
The IMF says the country must also prepare for possible fiscal risks, including increased budget costs due to legal challenges to past wage and pension cuts, reform fatigue and pre-election uncertainty.
Eurozone finance ministers could grant Greece close to 1 billion euros in April if Athens completes reforms agreed with creditors by then. So far, it has completed 13 of 16 promised reforms, the European Commission said.
Greece, which has tapped bond markets twice this year, has created a substantial cash buffer, the IMF said, adding that the country can service its debt through the end of 2022 without further market financing.
Its capacity to repay the Fund is currently “assessed to be adequate,” but if fiscal risks materialize, that capacity “could become challenged over the medium term,” the IMF said.