Under the IMF microscope, the investment gap of Greece

By Tasos Dasopoulos

The International Monetary Fund proposes more capital opening of closed professions, completion of the cadastre and complete, faster implementation of the Bankruptcy Code in order to increase private investments in the near future.

A working text signed by the Fund’s researchers examines the creation of the investment gap of the Greek economy that reached 10% of GDP in the years of crisis, culminating in 2019 when the investment rate fell to 6% of GDP, which was one of the lowest in the world. .

As a cause of the very low flow of private investment in the period 2012-2019, the report points to the many structural problems in the business environment, reduced funding from banks, barriers to the flow of private capital (especially after the imposition of capital controls in 2015) and the high private debt of businesses.

A permanent structural problem, according to the IMF, is the large number of self-employed and small and very small companies. This is because these companies do not have the potential to make large-scale investments, due to the small market they serve and the low level of innovation and new technologies required by their activity. Also, as an obstacle to large investments is that a large percentage of companies in the Greek economy are active in services, which -with some exceptions such as tourism- are low-capital companies.

Nevertheless, the text acknowledges the effort made by the Greek authorities to change the climate in the field of investment from 2019 onwards. Notes, for example, the shift to green and digital investment, the large number of reforms included in the Development Fund to improve the business environment, improve the skills of the workforce, speed up the delivery of justice and business mergers.

Also positive is the reduction of the tax burden on businesses and households and the effort to reduce bureaucracy. He points in the right direction the creation of a new body for the preparation of large investments but also the public-private partnerships, which are a precondition for large investments in the near future.

In fact, it reveals that the Ministry of Finance has technical assistance from the International Monetary Fund to evaluate the investments that will be implemented through the Fund, in order to have the greatest possible return for the economy and employment. It is emphasized that this process is ongoing and aims to maximize the cost-benefit of Community resources.

The proposals

In addition to what is already being done, it is noted that more ambitious reforms could potentially unlock higher private investment without compromising the external viability of the economy. These include:

– The greater shift of the insurance to a more capitalized system to encourage private savings.

– The extension of working life for those who are on the verge of retirement.

– Proper prioritization of reforms and investments already included in the Recovery Fund, which could be a lever for increasing both the number and quality of investments.

– The intensity of cooperation between private and public funds based on specific priorities could also lead to higher levels of investment.

– The acceleration of the lifting of restrictions on closed professions and the most competitive sectors of the economy, as proposed by the Greek Competition Commission.

Encouraging private investment in internationally competitive sectors where Greece has little or no share.

– The completion of the land registry, in combination with the implementation of the new bankruptcy code, can revitalize the housing market.

– Completing the privatization of key public infrastructure (eg ports, airports, energy production) can be a catalyst for large foreign investments. Of course, the investments that will come are related to new projects that will strengthen corporate governance and competition.