IMF calls for more pension cuts, greater debt relief in report

The International Monetary Fund called for Greece to cut pensions and taxes and for its lenders to provide significant debt relief in order for the country to make a convincing exit from the crisis.

In its annual report on the Greek economy, following so-called Article Four consultations in Athens, the Fund described the country’s pension system as “unaffordable” despite recent reforms.

It argued that the pension system’s deficit remains too high at 11 percent, compared to a 2.5 percent average in the eurozone, and that too much of a burden has been placed on Greeks currently in work, while existing pensioners have largely been protected.

The Washington-based organization also said that Greece’s tax credit system was too generous, exempting around half of salary earners compared to a euro area average of 8 percent.

The IMF proposes a reduction in taxes and social security contributions, arguing that recent increases created incentives for undeclared work.

“Greece needs less austerity, not more,” said IMF mission chief Delia Velculescu as she presented the report in a teleconference with journalists.

The Fund, whose role in Greece’s third bailout program has yet to be clarified, also stressed the need for European lenders to deliver on their debt relief pledge as “growth prospects remain weak and subject to high downside risks.”

“Even with full implementation of this demanding policy agenda, Greece requires substantial debt relief calibrated on credible fiscal and growth targets,” the report said.

“In this context, it cannot be assumed that Greece can simply grow out of its debt problem. Further debt relief will be required to restore sustainability, going well beyond what is currently under consideration, and it should be calibrated on realistic assumptions about Greece’s ability to generate sustained surpluses and long-term growth,” the report said.

The IMF delivered its findings as the government submitted to Parliament its latest multi-bill, which contains draft legislation to complete several of the bailout milestones remaining before Athens can claim its next sub-tranche of 2.8 billion euros.

The legislative package contains provisions regarding pension reforms, the transfer of public organizations (DEKOs) to the new asset fund and the energy sector. MPs are due to vote on it on Tuesday.

The government hopes to have all the milestones, including those that do not need new legislation, completed by Thursday, when the Euro Working Group is due to meet to prepare for the October 10 Eurogroup.