The Bank of Greece's (BoG) interim report for monetary policy on Friday echoed European creditors in citing risks for achieving fiscal targets due to the recent and surprise announcement of a one-off welfare payment to more than half of Greece's pensioners as well as the suspension of a measure to harmonize (upwards) VAT rates on a bevy of eastern Aegean islands.
The second measure was due to the problems faced by certain islands dealing with the Mideast refugee problem.
The report was submitted to the Parliament president.
According to the central bank's report, the "most significant and immediate risk relates to a failure to reach a timely completion of the second review of the programme, especially in the light of upcoming national elections in a number of euro area countries.
Furthermore, the achievement of the fiscal outcome in 2016 is subject to downside risks, related to measures announced by the Greek government on 8 December 2016 corresponding to a fiscal loosening of roughly 0.4% of GDP. These measures, which were announced after the present Report went to print, reduce significantly the estimated safety margin beyond the target for 2016. Besides, the execution of the 2016 Budget has not yet been completed and the general government performance for 2016 has not been finalized, the Bank of Greece said in its report.
Also, any postponement of decisions on the part of our partners on concrete measures aimed to ensure the long-term sustainability of public debt, would hamper the improvement of Greece’s economic and investment outlook and weaken the prospect of a return of the Greek government and Greek businesses to international financial markets and, thereby, the prospect of a definitive exit from the crisis.
The Bank of Greece said there were several hurdles burdening domestic business climate and hindering investments and noted that unless some of them were resolved then recovery prospects could not be confirmed, as one of the basic pylons for economic growth in the coming years was an expected increase in investments.
On the fiscal leg, the central bank noted that fiscal adjustment was based mostly on higher revenues and warned of the risk that increased taxation could have more than-expected negative consequences on economic activity. Therefore, it would be better to improve the mixture of fiscal policy."
