The International Monetary Fund on Wednesday decided to release the next slice of bailout money to Greece after the euro member successfully carried out a bond buyback and passed further budget measures to ease the country’s debt load.
After announcing the Executive Board’s decision to disburse EUR 3.24 billion to Greece, IMF Managing Director Christine Lagarde said “the program is moving in the right direction” though it encountered a delay in implementation due to political crisis initially.
“Forceful structural reforms and broad-based domestic support will be needed to meet challenges, alongside long-term support from Greece’s European partners,” Lagarde said.
Greece, which is in its sixth year of recession, won favorable bailout terms from its European partners last year after the government showed firm commitment to comply with the terms of the bailout program.
Greece was allotted two more years to correct its excessive deficit after the country’s creditors noted that a marked worsening of the economic scenario has made it difficult for Greece to complete the correction of its excessive deficit by 2014. The new lenient terms are expected to help Greece to reduce debt to substantially below 110 percent of GDP by 2022.
In December, Eurogroup approved aid disbursement of EUR 49.1 billion to the debt-stricken country. Out of this amount, Greece received EUR 34.3 billion last month and the remaining amount is expected to be released in the first quarter of this year.
Lagarde said Wednesday that Greece has made progress with structural reforms, which is reflected in recent actions to reduce non-wage labor costs and reform the product market. “However, much more remains to be done to achieve the critical mass of reforms needed to boost productivity and lower prices.”
She urged Greece to radically overhaul its tax administration to bolster tax collections, fight tax evasion, and shrink the public sector, in particular through targeted redundancies.
Last month, the Greek Parliament approved a tax bill, which is expected to raise up to EUR 2.3 billion this year.
Separately, the IMF granted EUR 838.8 million loan disbursement to Portugal, under a EUR 78 billion bailout package approved in 2011. IMF Deputy Managing Director and Acting Chair Nemat Shafik said that Portugal has made “considerable progress in fiscal and external adjustment.”
“Sovereign spreads have narrowed significantly, which bodes well for the authorities’ strategy of regaining market access,” the official added.
However, she warned that the near-term outlook for the economy is uncertain and sizable medium-term economic challenges remained. The Fund urged Portugal to sustain efforts to make the tradable sector more competitive, boost long-term growth, and further advance fiscal consolidation.
by RTT Staff Writer
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