Greece: IMF Executive Board concludes 2023 Article IV Consultation 

Washington, D.C., 24 January 2024

Washington, DC: The Executive Board of the International Monetary Fund (IMF) concluded the Article IV consultation¹ with Greece and endorsed the staff appraisal without a meeting on a lapse-of-time basis.²

Greece’s economic outlook has improved notably. After a strong post-pandemic recovery, economic activity remained robust with real GDP growth projected at 2.3 percent in 2023 and 2.1 percent in 2024. Private consumption will be supported by positive real wage growth while investment will continue to expand with the implementation of the National Recovery and Resilience Plan supported by Next Generation EU funds. Headline inflation is forecast to reach 2 percent by end-2025 as pressures on core inflation will dissipate only gradually despite continued normalization of energy and food prices.

The banking system has remained resilient underpinned by balance sheet strengthening. Asset quality further improved with the Non-Performing Loan ratio declining below 5 percent in systemically important banks. Higher net interest margins have contributed to a strong rebound in bank profits and bolstered capital adequacy. The banking system also maintains sizable liquidity buffers despite substantial repayments of ECB’s targeted long-term refinancing operations (TLTRO).

Risks are more balanced for growth but tilted upward for inflation. A potential escalation of Russia’s war in Ukraine and the Conflict in Gaza and Israel could disrupt trade and trigger renewed energy and food price pressures and undermine confidence. In contrast, acceleration of ambitious structural reforms, in tandem with stronger-than-expected market reactions to the recent investment grade upgrade, could further improve growth prospects. Inflation could remain high, for example, as the result of pressures from recent and expected wage and pension increases and weather-related shocks.

Executive Board Assessment

In concluding the 2023 Article IV Consultation with Greece, Executive Directors endorsed staff appraisal as follows:

Greece’s economic outlook has improved notably but significant challenges remain. Real GDP is expanding beyond its pre-pandemic trend level, driven by strong tourism recovery, and strengthening investment catalyzed by NGEU funding and FDI inflows. Strong growth and high inflation have brought the public debt-to-GDP ratio down below its pre-pandemic level with limited financing risks in the medium term due to the favorable debt structure. However, structural imbalances arising from low household savings and still low level of investment as well as increasing risks from climate change are weighing on medium-term growth prospects. The external position in 2023 is assessed to be weaker than that consistent with medium-term fundamentals and desirable policies. The assessment was done with preliminary current account data for 2023.

Risks are more balanced for growth but tilted upward for inflation. A potential escalation of Russia’s war in Ukraine and the conflict in the conflict in Gaza and Israel could disrupt trade and trigger renewed energy and food price pressures and undermine confidence. Higher-than-expected persistence in euro area inflation and higher-for-longer interest rates would weigh on regional and domestic demand. In contrast, acceleration of ambitious structural reforms could further improve growth prospects. Inflation could remain high resulting from weather-related shocks as well as domestic pressures from recent and expected wage and pension increases.

Growth-friendly fiscal consolidation can further strengthen public debt sustainability while supporting inclusive and green growth. Further tightening in the near term and maintaining a primary surplus in the medium term would help further strengthen public debt sustainability while limiting additional pressure on inflation. For green and inclusive growth, fiscal policy should emphasize public investment, including green investment, and critical social spending such as healthcare and education. Advancing further fiscal structural reforms, including the ongoing efforts to address tax evasion, would enhance fiscal governance and improve the efficiency of fiscal policy.

The resilience of the financial system should be further strengthened in an environment of higher-for-longer interest rates. The monitoring and management of risks associated with interest rates, liquidity and funding, and credit exposures should be further strengthened. Temporarily elevated bank profits should be used to build capital buffers and improve the quality of capital. The activation of a positive neutral countercyclical capital buffer would help banks guard against potential systemic shocks. Borrower-based measures for mortgage loan borrowers—such as caps on loan-to-value and on debt service-to-income ratios—would enhance household resilience and consequently contain vulnerabilities in the banking system.

Comprehensive reforms to address structural supply impediments would lift medium-term growth prospects amid a negative demographic outlook. Continued reforms in digitalizing public administration and tackling barriers to more competition would unlock higher private investment and improve productivity. Ensuring higher labor participation and a better skilled workforce would raise labor market dynamism while further facilitating digitalization and the green transition. Strengthening judicial system reforms and out-of-court proceedings would contribute not only to improving business dynamism and productivity but also to increasing financial sector resilience by further reducing bank NPLs and distressed debt recovered by credit servicers.

Concerted efforts are needed to achieve the authorities’ ambitious climate goals and facilitate the green transition. Given the dominance of fossil fuels in energy supply, a strong implementation of the authorities’ policy framework for renewables, including measures to streamline the licensing framework for new investment and better integrate renewables in an upgraded electricity grid, would accelerate the progress while boosting energy security. The authorities should consider raising the carbon pricing (including excise and feebates) in non-ETS sectors such as transport to further incentivize rapid and efficient green transition as energy price continues to normalize.

1 Under Article IV of the IMF’s Articles of Agreement, the IMF holds bilateral discussions with members, usually every year. A staff team visits the country, collects economic and financial information, and discusses with officials the country’s economic developments and policies. On return to headquarters, the staff prepares a report, which forms the basis for discussion by the Executive Board.

2 The Executive Board takes decisions under its lapse-of-time procedure when the Board agrees that a proposal can be considered without convening formal discussions.