Greece Hits a Bailout Target. The IMF Is Not Convinced

  • IMF doubtful country can sustain level of primary surplus
  • The fund sees surplus gains coming from one-off measures

Lagarde Says IMF Not Asking for More Austerity in Greece

Greece achieved a 2016 primary surplus almost seven times higher than its bailout target, but the International Monetary Fund is skeptical the country can sustain that performance.  

The Hellenic Statistical Authority is set on Friday to unveil data on last year’s primary surplus, which Eurostat is expected to validate on Monday. The surplus will be close to 4 percent of gross domestic product, according to a finance ministry official who asked not to be identified in line with policy. The bailout target was for a primary surplus of 0.5 percent of GDP.

In spite of its better-than-expected primary surplus last year, the IMF is not convinced Greece will be able to maintain that level of performance for 2018 and beyond. The fund estimates that at least half of the primarily surplus for 2016 came from one-off measures rather than structural changes that will continue delivering results in the years to come, according to a person familiar with its analysis. That has prompted the fund to demand more austerity measures.

Greece’s level of primary surplus is key in determining the kind of debt relief it will need. The more such surplus it has, the less debt relief will be needed. Whether or not Greece should get such relief is a source of contention between the country’s euro-area creditors and the IMF. 

Different Opinions

In Malta this month, German Finance Minister Wolfgang Schaeuble said, “I don’t think at all that there will be future debt measures” for Greece. A few days later the IMF’s head, Christine Lagarde, contradicted him, saying, “debt restructuring will be needed,” the scope of which will need to be determined.

For 2016, the fund raised it surplus estimate on April 19 to 3.3 percent of GDP from 0.1 percent in October. According to the IMF, its updated projection would lead to a balanced overall budget -- including interest payments -- for the first time since Eurostat began compiling data in 1995. Greece has consistently had an overall budget deficit.

The IMF sees Greece posting a primary surplus in 2018 of 2 percent. With little faith in Greece’s ability to consistently deliver a high level of primary surplus, the IMF is insisting that the government implement more austerity measures to achieve and maintain a primary surplus of 3.5 percent of GDP from 2019 and beyond. Greek officials who spoke on condition of anonymity say the fund is making “arbitrary calculations” that are not in line with reality.

The parties concerned are still discussing how long Greece needs to maintain the 3.5 percent surplus. Two people familiar with the discussions said the current baseline scenario is to maintain it until 2022. But negotiations are ongoing and discussions in Washington on the sidelines of the IMF spring meetings may help to break the deadlock.

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