Greece: Fifth Review Under the Extended Arrangement Under the Extended Fund Facility, and Request for Waiver of Nonobservance of Performance Criterion and Rephasing of Access; Staff Report; Press Release; and Statement by the Executive Director for Greece

EXECUTIVE SUMMARY
Extended Arrangement. On March 15, 2012, the Executive Board approved a four-year arrangement in 
the amount of SDR 23.79 billion (2,159 percent of quota; €28 billion).
Purchases totaling SDR 7.2 billion (€8.1 billion) have been made so far, and a purchase in the 
equivalent of SDR 3 billion (€3.5 billion) is proposed to be released on the completion of the 
review. Euro area countries have so far disbursed €139.9 billion since this program’s approval (of 
€144.6 billion committed), of which €48.2 billion was for bank recapitalization.
Developments. Significant progress has been made toward rebalancing the economy. The fiscal primary 
and external current account balances are in surplus. Investor sentiment has improved, and the 
government successfully placed a medium-term bond. The economy is poised to grow in 2014, after six 
years of deep recession. All this bodes well for a potentially virtuous cycle of recovery to take 
hold. But a number of challenges remain to be overcome before stabilization is deemed complete and 
Greece is on a sustained and balanced growth path. The real exchange rate remains overvalued, and 
non-tourism exports are relatively weak. Banks face a mountain of bad loans that will require 
adequate capital and oversight to clean up, absent which the prospects are of a prolonged 
deleveraging antithetical to the assumed recovery. Fiscal gaps are projected for 2015–16, and 
public debt remains very high.
Policies. The authorities over-performed significantly on their 2013 fiscal primary balance target, 
achieving a surplus of 0.8 percent of GDP. Although the carryover of the over- performance to 2014 
is small, the authorities are on track to achieve this year’s target. They are implementing a 
number of structural reform commitments, with a notable acceleration of product and service market 
liberalization, where progress has lagged. However, in the area of labor market reforms, where 
Greece has made important progress in the past, the program is now falling short of targets. 
Following the Bank of Greece’s stress tests, the HFSF buffer has been set aside to safeguard 
financial stability, and ambitious steps are planned to strengthen the private debt resolution 
framework. Reforms to tax codes have been legislated, aimed at simplifying the system and making 
tax administration easier and, thus, addressing longstanding weaknesses. But at the same time, the 
authorities need to guard against pressure to rollback progress. On public administration reform, 
progress is mixed as Greece is struggling to introduce performance-based management and address the 
taboo against mandatory dismissals.