Read IMF transcript, regarding Greece
The International Monetary Fund estimates that years of efforts to contain Greece’s national debt will go to waste due to the coronavirus pandemic, as it projects the country’s dues will soar to 200.8 percent of gross domestic product this year, with a primary budget deficit at 5.1 percent of GDP after five years of primary surpluses, according to the Fund’s Fiscal Monitor report released on Wednesday.
The head of the IMF’s European Department, Poul Thomsen, told a press conference on Wednesday that Greek economic growth will suffer a huge blow this year because the country is heavily reliant on tourism, shipping and transport and because it has many small and medium-sized enterprises.
Thomsen is very familiar with the Greek economy and its intricacies after having been the chief representative of the Fund in Greece over the best part of the previous decade, and he added that due to the weaknesses of the local credit system, the recovery of the Greek economy will not come easily.
He further noted that in spite of the progress recorded recently, Greece has limited fiscal leeway to react to the new crisis.
see IMF transcript
MR. ADRIANO: Thank you, Poul. Again, send us your questions through the IMF Press Center. I would like to move now to Greece. A number of questions on outlook and debt sustainability. Maria Vasileiou with TA NEA asks: This was going to Greece’s best year in more than a decade, but according to your predictions, the country will suffer the steepest recession of all European economies this year. What course of action do you recommend to the Greek government and does the crisis call for a rethink of Greece’s debt relief measures? And Thanasis Koukakis with CNN Greece adds, do you believe the crisis will affect sustainability of Greek debt, and under what conditions could Greece maintain its current low-cost debt financing?
MR. THOMSEN: So, Greece was, as you know, starting to see the fruits of many years of consolidation and was beginning to see the build-up of a growth momentum. It will be particularly hard hit because of a number of factors. Again, tourism, but here also the strong dependence on shipping and transportation, which is one of the very vulnerable sectors in this situation. Again, the presence of a large number of small family-owned enterprises with limited ability to absorb shocks, is going to be a negative. And Greece, despite much of the progress achieved, of course, has limited space including because of weakness in banking, where Greece has still one of the largest levels of non-performing loans. There are no risks — acute risks — but it means that the banking system will have a more difficult time supporting the recovery when it gets underway.
So, again, I want to emphasize one should not put too much effort into comparing whether one country is a percentage point or two lower or higher than other countries. All countries had different dynamics going into the crisis. And even if they are affected equally by the crisis, because of this quarter-on-quarter dynamic going into the crisis, we could have differences in the annual GDP.
On the issue of debt, as I said before, there are a number of medium-term issues. It’s too early to really have an articulated and well-informed view on it simply because it makes such a big difference for the post- — for the impact of the closures whether the closures and the shutdowns last for a month, two months, or three months. That has a major impact on the trajectory, not least because the longer it lasts, it dramatically increases the risk of balance sheets problems in households, in enterprises, in banks. And, as I said, once we have these balance sheets issues, once we have this, you know, contagion into the financial sector, then we know from experience that it takes much longer for a recovery to take hold. The post-crisis recovery will be slower and significantly more protracted.
So, as long as we don’t have a better view on how much does it take to control the pandemic, what does it really take in the next couple of months to control this medical emergency, it is really not very meaningful to go into a long discussion about medium-term implications of this — including implications for foreign debt. So, this is why I think this — you will understand why it is not meaningful to have this discussion at this stage.
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