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This paper presents an update to IMF staff’s Preliminary Public Debt Sustainability Analysis on Greece. Greece’s public debt has become highly unsustainable. This is owing to the easing of policies during 2014, with the recent deterioration in the domestic macroeconomic and financial environment because of the closure of the banking system adding significantly to the adverse dynamics. The financing need through end-2018 is now estimated at euro 85 billion, and debt is expected to peak at close to 200 percent of GDP in the next two years, provided that there is an early agreement on a program.

Debts, Public --- International Monetary Fund --- Internationaal monetair fonds --- International monetary fund --- Banks and Banking --- Exports and Imports --- Macroeconomics --- International Lending and Debt Problems --- Fiscal Policy --- Banks --- Depository Institutions --- Micro Finance Institutions --- Mortgages --- International economics --- Public finance & taxation --- Banking --- Public debt sustainability analysis --- Debt sustainability analysis --- Debt sustainability --- Commercial banks --- Fiscal policy --- External debt --- Financial institutions --- Debts, External --- Banks and banking --- Greece

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KEY ISSUES Context: The union’s current account deficit—the key economic vulnerability flagged in the previous (2011) consultation—has declined over the past few years, including thanks to fiscal adjustment in Curaçao. But it remains large. Curaçao’s growth and job creation remain lackluster, due to weak competitiveness, adverse sectoral trends (e.g., in the international financial center), red tape, and rigid labor laws. Sint Maarten’s tourism-based economy is recovering but remains vulnerable to shocks and suffers from weak administrative capacity—as underscored, for example, by weakening tax collection. Risks: Both Curaçao and, especially, Sint Maarten are exposed to shifts in tourism demand. Curaçao is vulnerable to the uncertain situation in Venezuela, its main trading partner. If long-discussed flexibility- and competitiveness-enhancing structural reforms are not implemented, both countries’ capacity to absorb shocks may prove limited, and pressures on FX reserves and, ultimately, the peg may intensify. Policy recommendations: Fiscal policies should entrench recent gains to facilitate continued external adjustment (especially in Curaçao) and build buffers against shocks. Curaçao should extend the reform of its pension system to public sector workers, further streamline its administrative apparatus, and address weak governance and finances in state companies. Sint Maarten needs to increase revenues to support an expanding administration, including through stronger tax collection and greater contribution from its profitable state companies. The common central bank must monitor closely the deterioration in banks’ loan portfolios and refrain from direct financing of non-financial companies. It should also use more standard sterilization tools to control banks’ excess liquidity. Urgent action is required to lower the cost of doing business and remove pervasive disincentives to both supply and demand of labor.

Economic forecasting. --- Economics --- Forecasting --- Economic indicators --- Banking --- Banks and Banking --- Banks and banking --- Banks --- Computer Programs: Other --- Data Collection and Data Estimation Methodology --- Debt Management --- Debt --- Debts, External --- Debts, Public --- Depository Institutions --- Econometrics & economic statistics --- Exports and Imports --- External debt --- Finance --- Fiscal Policy --- Fiscal policy --- Fiscal stance --- Income economics --- International economics --- International Lending and Debt Problems --- Labor economics --- Labor Economics: General --- Labor --- Labour --- Macroeconomics --- Micro Finance Institutions --- Mortgages --- Public debt sustainability analysis --- Public debt --- Public finance & taxation --- Public Finance --- Sovereign Debt --- Statistics --- Netherlands, The