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Memorandum of Understanding on Specific Economic Policy Conditionality1682. In the first stage, submit the organic budget law by April 2014 to:i. Introduce fixed expenditure ceilings set in the MTFS for line ministries and thehealth care sector and every year a ceiling for an additional year will be added whilethe already set ceilings (i.e. for the first two years of the rolling three-year periodcovered by the ceilings) would remain as previously fixed.ii. Establish binding annual balanced-budget targets for local governments.iii. Identify performance targets for SOEs.iv. Introduce provisions to freeze ex-ante 10% of discretionary appropriations perbudget line as part of the MTFS. The frozen appropriations would be released in thesecond half of the year conditional upon meeting the fiscal targets. The firstapplication should concern the 2014 budget.v. Establish an independent Fiscal Council that will assess macro forecasts andassumptions for budget and MTFS preparation, monitor compliance against targetsand rules, and provide independent ex ante policy analyses and assessments offiscal developments and challenges.3. Following the first stage of the reform of the organic budget law, the Government will:i. Appoint the Board of a stand-alone independent Fiscal Council (July 2014).ii. Complete a full review of the internal MTFS and budget preparation processes toensure its conformity with the revised legislation including ensuring budgetaryindependence of regulatory and other independent bodies (September 2014).iii. Amend the OBL to ensure that it is fully in line with the ongoing PFM reformprogram and good international practice (October 2014).iv. After consultation with the EC-ECB-IMF propose a specific rule on revenue overperformanceeffective after the program period for inclusion in the OBL andwhether the size and nature of any windfall revenue and fiscal over-performance inthe previous year allows for a greater spending envelope in the current year, subjectto there being no projected gaps.2.5.3. Corrective and sanctioning mechanismsThe Government will:1. Strengthen HRADF's governance and independence and implement an automatic correctionmechanism, should there be any difficulties in the privatisation process or slippages in thetargets (quarterly):i. Reviewing the functioning of the privatisation framework law, through specificQPCs to be enforced the moment the privatisation plan derails.ii. Taking, in cooperation with EC/ECB/IMF, appropriate steps, including changes inexisting legislation and/or in the composition of the Board, to safeguard andstrengthen the independence and the functioning of the HRADF, if targets for thesale of assets to be privatised were missed substantially for two consecutivequarters. In all circumstances, the HRADF remains fully accountable to parliamenton an ex-post basis for the integrity of every privatisation sale.iii. Increasing automatically the primary surplus target, should there be a shortfall ofprivatisation proceeds due to the delay in sales of specific assets compared toprogramme targets for two consecutive quarters. Any shortfall in privatisationproceeds ceteris paribus increases the financing need and the debt ratio. To mitigatethis undesirable outcome, unless other adjustments are agreed with theEC/ECB/IMF, the primary surplus target would be raised with immediate effect by50 percent of the shortfall in proceeds, and should be achieved by means of currentexpenditure cuts in the general government. The adjustment within any year wouldbe capped at €1 billion.
Memorandum of Understanding on Specific Economic Policy Conditionality2.5.4. Debt servicing account and cash management1. The Government will ensure an effective implementation of the debt servicing account tomonitor cash flows, avoid diversion of official financing and secure a timely debt servicing.Law 4063/2012 established a segregated account in the Bank of Greece. By law,disbursements to this account cannot be used for any other purposes than debt servicing. Viathis account the amortization and interest payment costs of all HR’s loans, debt managementtransactions and derivatives, as well as any parallel cost (fees and other expenses) related todebt servicing and in general to Public Debt Management are paid. The proceeds of thisaccount are the disbursement of EFSF’s loans, subject to an EFSF acceptance notice, as wellas the Hellenic Republic’s contributions to debt servicing, including all revenues from theprivatisation of State assets and at least 30% of windfall revenues. All payments from thisaccount will be subject to prior detailed reporting to the EFSF/ESM and ex-post confirmationby the account holder (continuous).2. While the General Government primary balance is projected to achieve surpluses over thecoming years, the State budget remains in primary deficit. Currently there is no mechanism inplace able to transfer the improvement of the fiscal stance entirely to the State budget. Giventhe current fragmented cash management system there are large idle cash resources availablein other general government entities which could be used to cover part of the State financingneeds promoting a more efficient use of available resources. To address this issue theGovernment will:• Complete a review of the accounts of State in commercial banks by May 2014 and basedon this review will recommend the closure of all unnecessary accounts by June 2014.• Develop a plan for cash management reform by July 2014 to be fully implemented as of1 st January 2015.3. To ensure efficiency of the government's cash and risk management operations and avoidoperational risks, the PDMA will manage, on behalf of the Hellenic Republic, the State's bankaccounts related to the settlement – including payments – of all cash and risk managementtransactions and execute the whole borrowing operation of the Hellenic Republic, taking overthe functions carried out so far by the Public Debt Directorate (D23) of the Greek Ministry ofFinance active (May 2014).2.6. Making the public administration more efficient and effectiveReforming the public sector constitutes an essential step to increase in efficiency and productivitywhile at the same time ensuring the long term sustainability of the wage bill.2.6.1. Reforming the public administrationGreece has designed, and needs to thoroughly implement, an ambitious reform of the publicadministration, to make it more effective and serve the Greek citizens and economy more efficiently.The ongoing reorganisation of ministries and entities, the reallocation and streamlining of personnel,an objective and transparent recruitment procedure, the introduction of competence evaluation formanagers and staff, the broader use of public procurement and better financial management, theintroduction of e-Government and ICT policies and actions, the simplification of rules, and thereduction of scope for corruption, are all expected to help improve the performance in the public sectorand hence the productivity of the whole economy.169
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OUTLINE OF THE REPORTEXECUTIVE SUMM
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LIST OF GRAPHSGraph 1. Economic cli
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ACKNOWLEDGEMENTSThe report was prep
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European CommissionThe Economic Adj
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1. INTRODUCTION1. INTRODUCTION1. Th
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2. MACROECONOMIC AND FINANCIAL DEVE
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2. Macroeconomic and financial deve
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Chart 3Graph 2.3. Exports of goods
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Chart 18Graph 13.1. Distance to Fro
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4. Debt sustainability analysis and
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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. 1582013 Economic and Fiscal Pro
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