“A good start”, that is how the EU commission, the IMF and the European Central Bank described Greece's fiscal reforms after reviewing it for two weeks as part of the bailout second tranche conditions worth €9.0 billion, which Greece due to receive in September.
According to Reuters, the review found Athens was so far implementing austerity measures “as agreed”. The steps, and more like them needed in the coming months and years, are key for Greece to slash its primary budget deficit from 8.6% of gross domestic product in 2009 to 2.4% this year, and to improve further to a 6.0% surplus in 2015. The review also found that Greece's economy, although in deep recession, is faring slightly better than analysts had feared just a few months ago.
The Purchasing Managers' Index (PMI) for the Greek manufacturing sector rose for a second straight month in July after hitting a 13-month low in May, though it continued to indicate contraction. “The survey data suggests the contraction may not be as bad as thought,” Reuters cited RBS economist Nick Matthews, though he added, “it is still early days.”
According to the terms of IMF and European Commission, Greece’s economy is assumed to shrink 4.0% this year after a drop of 2.0% last year, according European economists, Daniele Antonucci and Elga Bartsch at US investment bank Morgan Stanley, Greece is on track to reach its deficit-reduction targets for this year, or even beta them by a small margin.
Irish financial website www.finfact.ie cited Antonucci and Bartsch saying Greece's adjustment plan goes far beyond fiscal tightening. Fixing a number of fiscal deficiencies is another key goal. On this front, parliament passed the all-important pension reform bill at the beginning of July. Among the various structural reforms that will need to be implemented, this is one of the most relevant, in their view. The website also cited the IMF saying the reform is less successful in containing spending on pensions in the medium term.
Indeed, after the initial drop in pension expenditure, due largely to the elimination of the Easter, summer and Christmas payments, spending is projected to increase by 3% of GDP between 2015 and 2035. Moreover, the effects of the reform can be greatly reduced if some of the key pillars are excluded, resulting in a bigger increase in spending on pensions.
If this translates into an additional improvement of just 0.1 percentage point in the primary budget balance this year and in coming years, and given revised GDP and inflation figures for 2010, Greece's debt ratio in 2015 will be 133.0 percent instead of the 139.0 percent now assumed in the country's long-term plan, the spreadsheet suggests, Reuters reports. (BBJ)