Greece May Need Further Debt Relief Despite Austerity Policy

Posted February 09, 2017

While European officials insist that the IMF participates in the bailout, the fund says it will not lend more unless the country's long-term debt is sustainable, and that requires further substantial debt relief and realistic budget targets.

"Reaching and sustaining such a high surplus for an extended period will be challenging. and given that double-digit unemployment rates are expected to persist for several decades", the fund's Article IV review said.

The IMF's intervention is an embarrassment for the eurozone, which wants to play down the prospect of further problems with Greece ahead of German and French elections.

'Greece can not be expected to grow out of its debt problem, even with full implementation of reforms, ' which the state has so far struggled to implement.

Eurogroup President Jeroen Dijsselbloem also waded into the row, accusing the International Monetary Fund of being surprisingly pessimistic over the health of the Greek economy.

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That debt relief must be accompanied, however, by "strong policy implementation to restore growth and sustainability", it said.

The IMF has been at loggerheads with other members of the so-called troika of creditors involved in Greece's bailout for nearly a year.

And it will meet the IMF's target by reporting primary annual budget surpluses, which do not include interest payments, equal to 1.5% of economic output.

The reports highlighted that despite a "massive effort" by the Greek people some of the reforms are incomplete, including changes to the pension and income tax systems, where too few people bear most of the tax burden, she said. It also needs to agree another bailout deal before the next meeting of eurozone finance ministers in two weeks.

That would allow the country to join the European Central Bank's bond-buying programme, which would boost market confidence and make it easier for Greece to return to the bond market later this year.