IMF praises Greek effort in rescue programme

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The International Monetary Fund says Greece's rescue programme has "continued to perform well" as it approved payment of another €2.5 billion ($4.5 billion), according to a statement released in Washington.

The IMF said the Greek authorities were to be commended for their efforts to implement budget cuts, new economic policies and other reforms. Inflation was falling and the Greek economy was becoming more competitive, the IMF said.

"The overall fiscal adjustment to date has been impressive. It is important that fiscal structural reforms be forcefully advanced to ensure a lasting consolidation."

More reforms are needed to boost potential growth, the IMF said. Greece needed to make additional changes to create new jobs, improve access to professions and deregulate tourism and retail trade, the IMF said.

"Market sentiment toward Greece remains volatile. The economy is still adjusting and unemployment is rising."

The announcement brings disbursements so far under Greece's standby arrangement to about €10.6 billion, part of a €110 billion rescue package that the IMF and European Union announced in May. The IMF's share is about €30 billion.

Greece's economy has been struggling under the crisis, the fund said. Economic indicators pointed towards "continued" contraction, the IMF said in a staff report.

"The GDP contraction has been slightly deeper than initially expected," the IMF said. "Bond spreads remain high owing to another round of Greek fiscal data revisions and financial turmoil in the euro area periphery."

The Greek economy was now expected to shrink 4.25 per cent in 2010 and 3 per cent in 2011, compared with previous forecasts of 4 per cent and 2.5 per cent respectively, the IMF said.

"Short-term risks to the outlook remain skewed to the downside, but there is upside potential in the medium-term. The macroeconomic outlook has weakened slightly."

The IMF said Greece's budget measures had reduced the deficit by an estimated 6 per cent of gross domestic product in 2010.

- Bloomberg