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IMF frees US$4.6b in aid for Greece

The International Monetary Fund released US$4.6 billion in aid to Greece, after a yearlong delay to ensure Athens was meeting targets set by bailout lenders.

WASHINGTON: The International Monetary Fund (IMF) released US$4.6 billion in aid to Greece on Friday, after a yearlong delay to ensure Athens was meeting targets set by bailout lenders.

The Fund said the Greek government had surpassed targets on closing its budget gap, but warned of a number of challenges still facing the country in fully stabilizing its finances and returning to sustainable growth.

"The Greek authorities have made significant progress in consolidating the fiscal position and rebalancing the economy," said Naoyuki Shinohara, IMF deputy managing director.

"The primary fiscal position is in surplus ahead of schedule, and Greece has gone from having the weakest to the strongest cyclically-adjusted primary fiscal balance in the euro area in just four years."

But Shinohara said the country needs to further improve tax collection, toughen controls on spending, and move faster on privatizing state assets.

He also pointed to the still-weak banking sector and a "very high" level of non-performing loans.

"While there is no acute stability risk, it is critical for the economic recovery that banks be adequately capitalized upfront to recognize losses" based on realistic recovery expectations, he said.

The disbursement followed the release at the end of April by the Eurogroup of 6.3 billion euros (US$8.6 billion) in rescue program support to Greece, in a firm nod to its progress in cleaning up its finances and narrowing its budget deficit.

The IMF funds are part of a four-year joint package with the European Union (EU) set in March 2012 and worth a total of US$235 billion (173 billion euros) to rescue the sinking Greek economy.

The package has required extensive reforms and painful austerity budgeting by the government.

Two IMF disbursements were delayed over the past year - lumped into Friday's single payout - amid questions over whether Athens was sticking to its promises on structural and financial reforms.

The Greek government though has fought to limit the austere demands of lenders, as it remained stuck in a grinding recession dating back to 2008.

The economy remained in recession in the first quarter of 2014, contracting at a 1.1 per cent annual pace, but is expected to achieve overall growth of 0.6 per cent this year.

In April, the European Commission confirmed that Greece achieved an underlying budget surplus of 1.5 billion euros last year, beating its bailout program target of just balancing its accounts.

That achievement opened the door for the Eurogroup disbursement, as well as the government's successful return to commercial debt markets that month, raising US$4.2 billion.

"The recent return of the Hellenic Republic and of Greek banks to the international capital markets is an encouraging sign of increasing market confidence and is an important first step towards regaining broader market access," the Eurogroup said in early May.

However, it added, "fully implementing the reforms of the program will be crucial to that end."

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