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IMF uncertain Greece’s debt is sustainable in the long term

July 31, 2018

Workers raise a slab at the Parthenon temple atop of Acropolis Hill in Athens, Greece, Tuesday, July 31, 2018. Years of repair work continue at the the 2,500-year-old Parthenon temple. (AP Photo/Jon Gambrell)

ATHENS, Greece (AP) — Greece still faces an uphill struggle after the end of its bailout program and it is not clear that its public debt load will be sustainable in the long term, the International Monetary Fund said Tuesday.

An IMF report recommended a reduction in high direct taxes, which were imposed to right the country’s public finances but also constrain growth.

The economy is expected to grow 2 percent this year and 2.4 percent in 2019 but will slow to 1.2 percent in 2022. In the long term, the IMF report said, population aging will further hinder economic activity.

Greece’s bailout programs end in three weeks’ time. They were launched in 2010 when the country lost access to international bond markets after admitting it misreported key financial data.

From Aug. 21, it will have to finance itself through bond sales, although a hefty cash buffer provided by European creditors last month means there will be no urgent need for the country to quickly raise funds.

The IMF, which contributed to Greece’s bailout loans, said the European creditors’ agreement to ease loan repayment terms ensures medium-term sustainability for the debt, while their further pledge to provide, if needed, additional future debt relief is “very significant and welcome.”

“Longer-term (debt sustainability) prospects remain uncertain,” said Peter Dohlman, the IMF mission chief for Greece.

Greece’s debt will fall from a staggering 188 percent of annual output this year to just below 140 percent by 2037.

After that, however, the debt-to-output ratio will begin to rise.

The IMF report also highlighted Greece’s high unemployment rate, currently around 20 percent and expected to decline to 14.1 percent in 2023, and called for action to boost public administration and further reform product and labor markets.

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