The International Monetary Fund published its delayed latest report on the progress of the Greek rescue program on Tuesday afternoon, after the new ministerial cabinet was announced.

Aside from the praise for successfully implementing the program though, the report emphasizes the need to implement reforms and take necessary measures (such as extending the solidarity contribution measure) in order to cover a fiscal gap in the 2015 budget and to continue producing primary surpluses until 2016.

Nevertheless though, the IMF highlights the rise of poverty (from 20% in 2009 to 23% in 2012) as well as the difficulty in carrying out the reforms. The IMF also notes that the coalition government has a scant 2-seat majority in Parliament, which explains the difficulty in legislating on controversial subjects.

The IMF’s main directions regarding measures and interventions are

  • Cover the 2-billion euro fiscal gap for 2015. This will be revised in autumn, when the new budget is composed. Extending the emergency solidarity contribution until 2016 may be a solution, otherwise the gap will increase to 3.7 billion euros. The Prime Minister Antonis Samaras along with the outgoing Finance Minister Yannis Stournaras and Governor of the Bank of Greece Giorgos Provopoulos have agreed to take all necessary measures to achieve the goals.
  • Cover the 12.6 billion euro funding gap, reduce debt to 127.7% GDP by 2020 and 117.2% by 2022, which suggests that Greece’s European partners must take bold steps to reduce the debt to make it viable.
  • Ensure that primary surplus continue to be generated, by monitoring wages, pensions and state benefits.
  • Carry out dismissals in the public sector, in accordance with the goals that have been set.
  • Lift limitations on collective dismissals and legislate on lock outs.
  • Reexamine all interventions in the minimum wage
  • Reexamine pension cuts, as the pension cost is still rather high (17% GDP)
  • Take more drastic measures to improve the efficiency of the tax collection mechanism, without any political intervention in its operation. This was considered a hint towards Mr. Theoharis’ abrupt dismissal from the post of General Secretary of Public Revenue.

The IMF report is available here.

Thomsen in favor of reducing taxes if…

The IMF’s representative in the troika, Poul Thomsen, commented that the tax rates in Greece are considerably high and argued that he is in favor of reducing them, without, however, putting fiscal goals at risk. Mr. Thomsen also noted that he knows the new Minister of Finances Gikas Hardouvelis and looks forward to working with him and expressed his pleasure for his cooperation with outgoing Minister Stournaras.

Regarding the removal of Harris Theoharis from the position of General Secretary of Public Revenue, the IMF officer claimed that he does not wish to comment, but noted that he hopes that Mr. Theoharis’ removal will not stifle progress in the organization of the tax collection mechanism.

Mr. Thomsen confirmed the IMF estimation of a fiscal gap in 2015 and disagreed with the need to across-the-boar wage and pension cuts to cover it. Instead, Mr. Thomsen proposed the extension of emergency taxes and levies, such as the solidarity contribution, in order to cover the gap. In any case, the decision on how to address this issue will be made in autumn, when the troika will have a better idea of the reform progress.

When asked about the possibility of a third rescue package to cover the funding gap of the next few years, which the government has vehemently denied, the IMF officer also noted Greece may avoid it if it returns to the markets and takes advantage of the leftover funds from the bank recapitalization.