IMF report suggests new measures necessary

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The third review of Greece’s third bailout could hit a snag after the International Monetary Fund’s forecast Thursday that the country’s primary surplus in 2018 will be at 2.2 percent of gross domestic product – significantly lower than the 3.5 percent predicted by European institutions and stipulated in the government’s draft budget and the bailout agreement.

The latest forecast included in the IMF’s Fiscal Monitor report released Wednesday could, analysts believe, be a source of misery not just for Athens, which may once again be forced to look down the barrel of fresh measures next year to the tune of 2.3 billion euros – 1.3 percent of GDP –  but for its European Union partners as well, who will have to decide whether to go along with the IMF’s forecast or not.

If they do not, then the risk of the IMF leaving the Greek program will be higher. If, however, European lenders go along with IMF’s forecast, which it first made in July, then Athens is concerned that they may revise their own predictions downward in order to placate the Washington-based organization – as was the case during the second review – in order to ensure that it remains on board with the Greek program.

The latter outcome could, analysts reckon, be the more likely one given that Germany’s Free Democrats (FDP), expected to form part of Chancellor Angela Merkel’s governing coalition, have stated that they will agree to an aid program for Greece on the condition that the IMF takes part in the Greek bailout.

As part of the second review, the leftist-led government had agreed to implement measures in 2019 and 2020, but not in 2018 citing the existence of the automatic fiscal mechanism known as the “cutter,” which will be activated if Greece fails to meet its fiscal targets.

If the IMF does not revise its assessment then it is highly likely that the cutter will be activated. In any case, analysts say that the third review will most likely run into trouble as a result of yesterday’s report by the IMF which also said in July that the need may arise to expedite already agreed cuts in pensions and reductions in the income tax threshold.

Moreover, it also recommended the suspension of the government’s planned counter measures to offset austerity until 2023.

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