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IMF - Third Review Under the Stand-By Arrangement

IMF - Third Review Under the Stand-By Arrangement

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©
2011 International Monetary Fund
March 2011IMF Country Report No. 11/68
Greece: Third Review Under the Stand-By Arrangement––Staff Report; InformationalAnnex; Press Release on the Executive Board Discussion; Statement by the Staff Representative on Greece; and Statement by the Executive Director for Greece.
The following documents have been released and are included in this package:
 
The staff report, prepared by a staff team of the IMF, following discussions that ended onFebruary 11, 2011 with the officials of the Greece on economic developments and policies.Based on information available at the time of these discussions, the staff report wascompleted on February 28, 2011. The views expressed in the staff report are those of the staff team and do not necessarily reflect the views of the Executive Board of the IMF.
 
A Press Release
 
A statement by the Staff Representative on Greece
 
A statement by the Executive Director for GreeceThe document(s) listed below will be separately released.
Letter of Intent*Memorandum of Economic and Financial Policies*Technical Memorandum of Understanding
*
LOI & Memorandum of Understanding on Specific Economic PolicyConditionality (European Commission and European Central Bank)*
*Also included in Staff Report
 The policy of publication of staff reports and other documents allows for the deletion of market-sensitiveinformation.
Copies of this report are available to the public fromInternational Monetary Fund
Publication Services700 19th Street, N.W.
Washington, D.C. 20431Telephone: (202) 623-7430
Telefax: (202) 623-7201E-mail:publications@imf.org 
Internet: http://www.imf.org
International Monetary FundWashington, D.C.
 
 
 INTERNATIONAL MONETARY FUNDGREECE
Third Review Under the Stand-By Arrangement
Prepared by the European Department in Consultation with Other DepartmentsApproved by Ajai Chopra and Martin MühleisenFebruary 28, 2011
 
Stand-By Arrangement
: On May 9, 2010, the Executive Board approved a three-year Stand-ByArrangement for Greece in the amount of SDR 26.4 billion (3,212 percent of quota). A first purchasewas made upon program approval; a second purchase was made upon completion of the first reviewin September 2010, and a third purchase was made upon completion of the second review inDecember 2010 (in amounts equivalent to SDR 4.8 billion, SDR 2.16 billion, and SDR 2.16 billion,together totaling €10.5 billion). The fourth disbursement, subject to completion of this review, would be in an amount equivalent to SDR 3.6045 billion (about
4.1billion). To date euro-area countrieshave disbursed €27 billion, and will make available another 
10.9 billion with this review.
 
Recent Developments
:
The economy has been evolving broadly as projected, with a GDP decline in2010 of around 4½ percent, continued low underlying inflation, and unit labor costs beginning tofall. Against these headwinds, the authorities achieved a 5¾ percent of GDP fiscal adjustment in2010, reducing the deficit to 9½ percent of GDP. In the banking system, deposit outflows havecontinued at a modest pace, and credit has begun to contract, but financial system stability has been preserved with the assistance of exceptional liquidity support from the ECB. In the structural area,there have been some delays, but key labor market, service market, and business environmentreforms are advancing.
 
 
Program status
: Staff’s overall assessment is that Greece has made further progress towards itsobjectives, and the underlying fiscal and broader reforms necessary to deliver the program’smedium-term objectives are gradually being put in place. However, major reforms still need to bedesigned and implemented to build a critical mass necessary to secure fiscal sustainability andeconomic recovery. All performance criteria were met, but the indicative target on domestic arrearsaccumulation was again missed. The measures supported by structural benchmarks have been either implemented or partially implemented (with slight shortfalls in substance for collective bargainingreforms and the study of public pay and employment). Looking ahead, a strategy was agreed toaddress a nascent ¾ percent of GDP fiscal gap for 2011, namely by drawing in structural measuresnow under preparation in the context of the medium-term budget strategy. The review defined indetail the process and the key elements of the medium term strategy, which the authorities intend tocomplete by May. It also addressed the next steps in fiscal institutional reforms, and the next stepstowards an accelerated privatization and real estate development program. In the banking sector, thefocus was on how to establish medium-term funding plans for banks consistent with macro andfiscal constraints, and on strengthening supervision. Broader structural reforms for 2011 have beenmore fully articulated.
 
 
Discussions.
See the Fund relations Annex.
 
Publication
. The Greek authorities consent to the publication of the Staff Report.
 
2Contents PageI. Recent Developments .............................................................................................................4
 
II. The Macroeconomic Outlook ................................................................................................8
 
III. Discussions ........................................................................................................................10
 
IV. Program Modalities ...........................................................................................................20
 
V. Staff Appraisal ....................................................................................................................22
 
Boxes
1. What Explains the 8 percent of GDP Fiscal Gap for 2012–14? ..........................................24
 
2. Banking System Deleveraging .............................................................................................25
 
3. Impact Assessment of Business Environment Reforms ......................................................26
 
Figures
1. Selected Economic Indicators, 2005–10 ..............................................................................27
 
2. Competitiveness Indicators, 2006–10 ..................................................................................28
 
3. Balance of Payments ............................................................................................................29
 
4. Money and Banking Indicators, 2005–10 ............................................................................30
 
5. Budget Execution, up to end-2010.......................................................................................31
 
6. Financial Indicators, 2007—10 ............................................................................................32
 
7. Revised Macro Projections ..................................................................................................33
 
8. Macroprojections—International Comparison ....................................................................34
 
9. Fiscal Financing Challenges ................................................................................................35
 
10. Structural Reform Challenges ............................................................................................36
 
Tables
1. Selected Economic Indicators, 2006–11 ..............................................................................37
 
2. Monetary Survey ..................................................................................................................38
 
3. Financial Soundness Indicators ............................................................................................39
 
4. Modified General Government Cash Balance for Program Monitoring .............................40
 
5. General Government Operations, 2009–11 .........................................................................41
 
6. Status of Fiscal Structural Reforms .....................................................................................42
 
7. Status of Sectoral Reforms...................................................................................................43
 
8. Medium-Term Macroeconomic Framework, 2011–2016 ....................................................44
 
9. Summary of Balance of Payments, 2009–15 .......................................................................45
 
10. Policy Priorities for Fiscal Consolidation Targets, 2012–14 .............................................46
 
11. Revenue Collection Process—Issues and Actions .............................................................47
 
12. Spending Process—Issues and Actions .............................................................................48
 
13. General Government Financing Requirements and Resources .........................................49
 
14. Structural Reforms Ahead ..................................................................................................50
 
15. External Financing Requirements and Sources .................................................................51
 
16. Indicators of Fund Credit ...................................................................................................52
 
17. Access and Phasing under the Stand-By Arrangement ......................................................53
 
18. Aggregated Balance Sheet of Monetary Financial Institutions (MFIs) .............................54
 

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