The International Monetary Fund’s (IMF) executive board has approved the latest tranche of €3.2 billion (£2.8 billion) loan to Greece to help the country pay debts maturing this month and return to positive economic growth in 2012.
Christine Lagarde, the newly elected chief of IMF said Greece has made progress but needs to do more while announcing the payment, part of a €100 billion IMF-EU bailout package announced last year to rescue the country’s troubled economy.
“The program is delivering important results: the fiscal deficit is being reduced, the economy is rebalancing, and competitiveness is gradually improving”, said Ms Lagarde.
“However, with many important structural reforms still to be implemented, significant policy challenges remain. A durable fiscal adjustment is needed, lest the deficit get entrenched at an unsustainably high level, and productivity-enhancing reforms should be accelerated, lest growth fail to recover”, she cautioned.
The latest approved tranche brings the total IMF disbursements to Greece at about €17.4 billion. The IMF has already warned that a Greece default will spread the crisis possibly to the US through money markets, especially if the contagion spreads to European banks that continue to hold substantial Greek debts on their books.
The measures taken so far have failed to restore investor confidence and the EU is working on another package to cover funding needs of Athens till 2014, with Germany and the Netherlands demanding that private sector be involved to bear a portion of the second round of funding so that the entire burden is not borne by the public sector and tax-payers.
“Greece’s debt sustainability hinges critically on timely and vigorous implementation of the adjustment program, with no margin for slippage, and continued support from European partners and private sector involvement”, Lagarde said.
“To strengthen Greece’s competitiveness, structural reform implementation needs to be accelerated. This will help achieve synergies, such as between privatization and reducing administrative barriers to investment. The reform agenda should be expanded to address Greece’s high labour tax wedge and inefficient judicial system”, she added.