The International Monetary Fund (IMF) said on Wednesday Greece must move faster on fiscal and structural reforms to avoid debt default and urged euro zone countries to decide how to support their troubled partner.
The IMF, which provided a 110-billion-euro lifeline to Greece along with the EU a year ago, said Athens has put in place measures to correct past inertia blamed for missing some bailout deal targets and now implementation was key.
"If reforms are not in place, debt is not sustainable, that's for sure," the IMF's mission chief for Greece, Poul Thomsen, told a conference call.
The IMF said Greece's economy would contract more than previously expected and debt would soar even more despite far-reaching deficit-cutting measures.
In its latest review of the debt-choked country, it praised the socialist government for deciding some taboo-breaking measures but said fact action was now needed to catch up.
"The authorities now need to move to vigorously implement these policies in a timely manner.
Implementation will be the key subject for future reviews," it said.
The report effectively concludes the fund's fourth review ahead of a fifth, 15-billion-euro EU/IMF bailout tranche which has already been approved.
BACK TO DRAWING BOARD
The bailout foresaw Greece returning to bond markets in 2012 but high borrowing costs are keeping the debt-ridden country away, forcing Greece's partners back to the drawing board to keep the debt crisis spreading to the rest of the euro zone. The IMF said euro zone countries needed to decide how they would help Greece and that private sector involvement (PSI) in a second bailout for the country was appropriate.
"Given the impact PSI could have on Greece's credit rating, it is imperative for euro area member states to put in place mechanisms to guarantee liquidity support to Greece's banking system while a PSI operation is undertaken," it said.
Asked whether the IMF would provide further support to Greece, Thomsen said no request had been made.
The IMF revised its projections for growth, saying GDP would contract by 3.8 percent this year, compared to 3.0 percent predicted in the previous review, and said debt would peak at 172 percent of GDP in 2012.
The Fund praised the recent creation of a privatisation agency to help rake in a targeted 50 billion euros in proceeds until 2015, and said the target was ambitious but achievable.
Measures improving tax administration to boost revenues and technical assistance to put them into effect are key to the success of the programme, as is wider political support in the country, it said.
The conservative opposition has opposed the bailout plan, saying it stifles the economy, but supports some state selloffs. A public resentful with austerity has staged almost daily protests against the measures.
"This programme does face significant implementation risks going forward but it represent the best option to resolve Greece's challenges and avoid broader contagion in Europe," the IMF said.