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European CommissionThe Economic Adjustment Programme for Greece. Fourth Reviewbanking sector and also the improvements in liquidity positions of credit institutions continued, while lending tothe economy remained very weak. Banks are regaining access to the international capital markets asdemonstrated in March 2014 by a bank bond issuance for the first time since 2009 and the successful equityraising operations by two banks, validating investors’ renewed trust in the Greek economy. As a result oflowering their interest rate margin and tapping the international repo, debt and equity capital markets, Greekbanks have substantially reduced their reliance on Eurosystem funding over the past few quarters.The fiscal performance continued to be strong, with the 2013 primary balanced budget target met with asizable margin. The positive result largely reflects the better-than-expected outturn of the State budget and to aminor degree of the social budget. On the expenditure side, operational and social welfare spending wassubstantially under-executed compared with the budgeted amounts. As regards revenue, it benefited from astrong tourist season and robust collection of direct taxes, most notably property taxes. Moreover, higher-thanprojectednon-tax and one-off revenue, such as proceeds from the state guarantee fees paid by the banks, alsoplayed a role. Finally, the authorities frontloaded the absorption of EU structural funds in 2013 in the context ofreactivation of the large motorway construction projects. The government will use savings related to the betterthan-expectedfiscal outcome in 2013 to reduce the stock of public debt and to speed up the clearance of arrears.The authorities have implemented a range of mainly administrative measures to secure the 2014 fiscaltarget which, complemented with the limited carry-over of the better-than-expected 2013 fiscal outcome,have allowed to accommodate the cost of some structural reforms and initiatives supporting sociallyvulnerablegroups. Corrective actions, such as a claw back mechanism and interventions of a structural nature,have been taken to tackle the expenditure overruns identified in mid-2013 in the healthcare sector. Theauthorities undertook a series of actions aimed at increasing weak payment compliance for social securitycontributions through automatically offsetting of VAT and income tax refunds against Social SecurityContributions (SSC) debts, increasing sanctions and fees for the use of undeclared workers, cross-checking ofadministrative data, introducing mandatory declaration of contributions for some supplementary and lump-sumpensions and expanding the automatic reminders to all employers who have not paid their SSC obligations,rationalisation of OAEE (Fund for self-employed) exemptions. Additional steps are also being taken on therationalisation of public expenditure reducing military procurement programmes and spending ceilings for ExtraBudgetary Funds (EBFs). Overall, all these efforts coupled with some positive re-evaluation of baselinecomponents – most notably, the new income tax reform – created scope for implementing costly structuralreforms and a moderate increase in spending. The former concerns the elimination of nuisance charges and areduction of social security contribution rate by 3.9 percentage points, which is faster than required by theprogramme. The spending increase relates to the government initiative to provide socially vulnerable groupswith temporary income support and low-earning uniform personnel with a one-off bonus. The resources set asidefor this purpose by law amount to around EUR 500 million, which is equivalent to ¼% of GDP. It should benoted that these new plans were only made possible by an impressive fiscal consolidation over recent years andby continuing to adhere to a fiscal stance in line with the agreed targets going forward.For the outer years, it is essential to ensure that the ambitious reform agenda is fully implemented to closeany remaining fiscal gaps. The authorities have reconfirmed their commitment to meet the 2015 target and toimplement policies needed to achieve that objective, including the extension of expiring fiscal measures. An indepthreview of the social security system and a welfare spending review will be undertaken in the comingmonths to improve sustainability, efficiency and fairness. Steps will also be taken to address the relatively bigVAT compliance gap with a comprehensive review of VAT policies and administration. Any failure to deliverthe structural reforms already initiated (e.g. re-organisation of the revenue administration) or those that are in thepipeline would result in the necessity to search for savings in other areas.The taxation system and the revenue administration have been greatly reshaped over the last year, andfurther reforms are being introduced in 2014. Key reforms include the Income Tax and Tax ProceduresCodes that have broadened the tax base and modernised the rules of tax administration. The new unifiedProperty Tax has replaced both the PPC tax and the FAP wealth tax and allowed a substantial reduction intransaction taxes. Following these initiatives, a new Accounting and Tax Recording Code will be adopted byMay 2014. Important progress has also been made with the reform of the revenue administration, after the long2
Executive summarydelays up to the end of 2012. A semi-autonomous revenue administration has now been created with allcompetences on tax and custom issues. Its reorganisation is nearing completion and plans to ensure full staffingin the coming months are in place. A strategic planning and financial directorate has been set up and an advisorycouncil of external experts has been created. In addition, an internal review unit has been put in place to whichtaxpayers must submit their claims, prior to them being able to go to court. This stream of reforms should becompleted in the first semester of 2014. A programme is now being implemented to address other remainingweaknesses in the system, reinforce tax collection, and support the fight against tax evasion and corruption. Thiswill improve the security of taxpayers and contribute to a better business environment. Tax collection has beenconsolidated in the largest offices and cash payments replaced by transfers and checks. An increased number ofaudits and the use of a risk-based approach should multiply the impact of the audits and slowly lead to anincrease of compliance. New tools are in place, such as the indirect bank account register. The collection ofsocial security contributions and debt is also being stepped up gradually. The results of these reforms of both thetaxation and the revenue administration now being put in place are expected to become more visible in terms ofstronger revenues over the next quarters as implementation progresses.Since the inception of the adjustment programme, Greece has made significant progress in PublicFinancial Management reforms but improvements in the area of budget preparation are still needed andshould be a priority for 2014. These reforms now allow provision of timely and accurate budgetaryinformation, assure strict compliance with the ceilings of the entity’s budget, and ensure the management andoptimal utilisation of each entity’s resources. However, more training and further sectorial expertise is needed inorder to reap the full benefit of the reformed set-up which is built upon General Directorates of FinancialServices (GDFS) embedded in each line ministry. The stronger budgetary process is helping to ensure respect oftargets, but the new corrective mechanisms can be useful to the full extent only if ceilings for the various levelsof government are used in the budgetary process over time. To improve budget preparation, competences mustbe built up both in General Accounting Office and in GDFS, accompanying the upcoming overhaul of theorganic budget law.Privatisation proceeds continue to come in, but again with some delays. Steps are being taken to reinforcethe governance and effectiveness of the privatisation process, including of real estate assets. Corporate salesadvance broadly in lines with plans, although some have been delayed in order to allow proper regulation ofmarkets before privatisation (gas, ports). Concerning real estate, despite the large number of assets available,current weak demand and immaturity of assets make it difficult to extract much value from real estate in theshort term, which has resulted in some adjustment in the projections. Recent tenders have nevertheless producedsatisfactory results, and some are expected to set significant investment in motion over the coming years.Crucially, in order to speed up generation of proceeds, work has been undertaken to strengthen the institutions incharge of the privatisation process (HRADF) and of the preparation of real estate assets (ETAD), to be reflectedin improved legislation and organisational changes. Monetisation through the involvement of private sectorinvestors in the development of real estate assets is being explored, but will only be able to mobilise modestrevenue flows in the short-run.The crucial reforms of the Greek public sector, notably the rationalisation and modernisation of thepublic administration, progress further. The strong reduction of public administration staff is proceedingahead of plans (over 20% since 2010 for employees of the General Government). The 2013 targets formandatory mobility have been achieved, although with a three-months delay. The targets for mandatory staffexits in 2014 are being delivered according to plans, by dismissing people illegally appointed, subject todisciplinary procedures or who have been in the availability scheme without being moved to another position.This notwithstanding, very substantial improvements in public administration are still needed to bring Greece inline with best practices. The priority is improving the quality and efficiency of the public administration, throughthe reorganisation of ministries to be completed in the next weeks, reallocation of personnel also via mandatorymobility, competence-based evaluation for managers and staff, better financial management, the simplificationof rules, the reduction of scope for corruption. All these steps are expected to help improve the performance inthe public sector and hence the service of the public administration provides to its businesses and citizens.3
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Chart 18Graph 13.1. Distance to Fro
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4. DEBT SUSTAINABILITY ANALYSIS AND
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4. Debt sustainability analysis and
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4. Debt sustainability analysis and
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Table 12. List of Milestones to be
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ANNEX 2: MACROECONOMIC FORECASTANNE
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ANNEXTable B1: USE AND SUPPLY OF GO
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ANNEXTable C1: FISCAL ACCOUNTS AND
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ANNEX 3: UPDATED PROGRAMME DOCUMENT
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Memorandum of Understanding on Spec
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OCCASIONAL PAPERSOccasional Papers
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No. 46No. 47No. 48No. 49The Western
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No. 80 2011 Pre-accession Economic
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No. 119No. 120No. 121No. 122Possibl
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No. 1582013 Economic and Fiscal Pro
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