IMF Cautions Greece on Structural Weaknesses Despite Economic Gains

11:19 31/1/2025 - Πηγή: Dikaiologitika

Greece’s economic outlook remains strong in the near term, with real GDP continuing its robust expansion, according to a preliminary assessment by the International Monetary Fund (IMF).

The country’s public finances have improved, and the debt-to-GDP ratio is declining, supported by fiscal consolidation efforts and

a crackdown on tax evasion.

However, the IMF warns that structural weaknesses could hinder long-term economic stability. Low investment levels, demographic challenges, and sluggish productivity growth pose significant risks. The report highlights the need for a policy approach that balances fiscal sustainability, structural reforms, and financial system resilience to ensure sustainable development.

Despite steady economic progress, Greece continues to grapple with labor market inefficiencies. The country has one of the lowest labor force participation rates in the European Union, particularly among women. Labor shortages in key industries, including construction and tourism, indicate a persistent mismatch between workforce skills and market demand. The banking sector, while more stable than in previous years, still requires stronger capital buffers and a reduction in reliance on Deferred Tax Credits (DTCs). Additionally, the country’s current account deficit remains high, driven by strong import demand linked to investment, exposing Greece to external vulnerabilities.

The IMF’s recommendations focus on strengthening fiscal sustainability, advancing structural reforms, and reinforcing financial sector stability. To improve fiscal sustainability, the report emphasizes the need for more efficient public spending. Streamlining investment management, improving procurement practices, and enhancing central coordination would help optimize resources. Social spending, particularly in healthcare and education, should be prioritized to promote inclusive growth.

Addressing tax evasion remains critical, with digitalization and modernization of tax administration seen as key steps toward improving revenue collection. Expanding the tax base and eliminating inefficient tax breaks, such as regressive VAT exemptions, could further strengthen fiscal stability. The IMF also stresses that additional fiscal space should be directed toward reducing public debt while addressing infrastructure needs, particularly in energy security and the green transition.

To advance structural reforms, the report suggests improving labor market conditions by increasing support for childcare and elderly care, which could help boost female workforce participation. Reducing the high tax burden on labor while maintaining incentives for job seekers could encourage employment growth. Enhancing vocational training and lifelong learning, particularly in digital and green skills, would help align workforce capabilities with evolving market needs.

Regulatory efficiency remains another key concern, with the IMF recommending the removal of entry barriers, particularly in the services sector, to encourage competition and investment. Strengthening regulatory quality through digitalization and improved impact assessments would also contribute to a more dynamic business environment. Additionally, the report stresses the importance of accelerating judicial reforms by expediting court case resolutions and fully implementing the insolvency framework to facilitate the reallocation of capital to productive sectors.

Reinforcing financial sector stability is another key area of focus. The IMF calls for closer monitoring of credit risk to ensure banks maintain forward-looking provisioning policies. Capital adequacy should be strengthened by directing bank profits toward building capital buffers and reducing reliance on DTCs. Recent measures introduced to regulate mortgage lending should be closely monitored to mitigate excessive leverage risks. Adjusting capital buffer requirements over time would help banks remain resilient amid economic uncertainties.

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