IMF counting on Europe to help Greece reduce debt

International Monetary Fund chief Christine Lagarde has said that she is counting on Europe to live up to its commitment to help Greece meet its targets for slashing its debt under an international rescue programme.

The IMF said in its quarterly review of Greece’s progress earlier this week that the bailout programme would fall short of the country’s needs by $14.59 billion by the end of 2015 and Euro Zone countries need to plug the hole.

The international lending agency described the expected shortfall as a “test of European support” and said finance ministers from the 17 countries that use the euro have already started discussing how to fill the financing gap.

Debt relief

Greece will also need debt relief from Euro Zone countries of about 4 per cent of GDP in 2014-15, the IMF staff review said.

It noted the risk that Greece will fall short of IMF forecasts to start recovering early next year, which could mean even bigger losses for Euro Zone governments on their rescue loans.

“The European partners, the members of the euro group, have always indicated that they would consider any additional measures and assistance needed for Greece in order for that country to reach the debt threshold that had been agreed,” IMF Managing Director Christine Lagarde told reporters yesterday.

“The commitment is, in my view, what matters most,” she said, adding that Europe’s help was contingent on Greece also living up to its obligations under the rescue programme.

Austerity programme

The austerity programme mandated by international creditors calls for Greece to slash its debt from about 160 per cent of GDP currently to 124 per cent by 2020 and significantly below 110 per cent by 2022.

The IMF is part of the so-called troika of lenders in the Greek rescue along with the European Central Bank and the European Commission.

Greece has been surviving on rescue loans from the IMF and other Euro Zone countries since 2010, when it lost access to long-term debt markets.

Austerity measures demanded in return for the troika’s $319-billion bailout programme have hammered the economy and sent unemployment surging to 27 per cent.

Annual economic output is around a fifth smaller than when it entered recession in 2008.

Lagarde said Greece now needs to take decisive steps to privatise state-owned enterprises and improve tax collection, among other structural reforms of its economy, if it wants to bolster the confidence of foreign investors and encourage them to return.

She described as “unfortunate” the public criticism of the IMF’s handling of the Greek financial crisis from one of the 24 members of her decision-making executive board.

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