Greece faces a financing gap that won’t be solved by budget measures being discussed because a weak economy and delayed privatizations have worsened its fiscal situation, International Monetary Fund Managing Director Christine Lagarde said.
Lagarde said efforts being discussed by the Greek government and the so-called troika to find 11.5 billion euros in savings won’t be enough to put back on track Greece’s 130 billion-euro (168 billion) bailout jointly funded by the IMF, the European Commission and European Central Bank.
A “financing gap” has emerged because of “the macroeconomic situation, the major delay in privatization and therefore shortfall in proceeds from the privatization” as well as “limited revenue collection,” Lagarde said at the Peterson Institute for International Economics in Washington. “The Greek debt will have to be addressed as part of the equation.”
Greece and representatives of the country’s international lenders last week agreed to take a week-long break from inconclusive talks to carve out a budget package that’s key to receiving aid funds. Lagarde’s comments today suggest an agreement may have to go beyond these measures.
The IMF has indicated that any additional financing for Greece will have to come from Europe. In a March report on Greece, IMF economists said the country may need more aid from Europe or further debt restructuring if the current loan program went off track.
A goal of reducing Greece’s debt to 120 percent of its gross domestic product by 2020 “is still clearly the horizon that is set in order to measure the efforts to be undertaken by then,” Lagarde said.
Lagarde said the Greek economy also requires structural reforms to help prepare it for growth. “We need some structural reforms that are in the interest of Greece and the Greek population so that those who can work, who want to access markets, can actually do so,” she said.
Earlier, Lagarde said the IMF favors giving program-receiving countries that are making “huge efforts” on debt reduction the time and flexibility to do succeed.
“The last thing we want is for programs to be off track and off track and off track again,” she said during a speech in Washington. She said the IMF has recommended slowing the pace of fiscal adjustment for Portugal and Spain.
“We have our views about Greece,” she said.