Going for Growth 2021 – Greece

Greece

The COVID-19 crisis adds urgency to addressing Greece’s long-standing challenge of boosting investment and productivity to diversify the economy and improve job creation. Despite continued progress in reform efforts, such as digitalising the public administration, red tape, low-quality regulations, and a slow justice system mar the business environment. Coupled with significant gaps in the workforce’s skills, these inhibit firm growth and discourage innovation and investment, which will be essential to recover from the pandemic and sustain growth.

Performance prior to the COVID-19 crisis

Economy: Percentage gap with respect to the population-weighted average of the highest 18 OECD countries in terms of GDP per capita (in constant 2015 PPPs).

Inequality: The Gini coefficient for disposable income measures the extent to which the distribution of disposable income among households deviates from perfect equal distribution. A value of zero represents perfect equality and a value of 100 extreme inequality.

Environment: Greenhouse gas (GHG) emissions include emissions or removals from land-use, land-use change and forestry (LULUCF). A high exposure to air pollution refers to above 10 μg/m3 of PM2.5.

Source: Economy: OECD, National Accounts, Productivity and Labour Force Statistics Databases; Inequality: OECD, Income Distribution Database and World Bank, World Development Indicators Database; Environment: OECD, Environment Database and United Nations Framework Convention on Climate Change (UNFCCC) Database.

Improving investment climate for a sustained, job-rich recovery

Inefficiencies in public administration and the heavy regulatory burden slow the government effectiveness, detract from the investment climate and discourage firms from growing, weighing on productivity. Enhancing public administration efficiency and effectiveness of the justice system is essential for addressing both the COVD-19 crisis and long-term challenges. The government’s efforts to reduce red tape and improve public services’ accessibility and responsiveness through digitalisation are showing their benefits and they should continue. Codifying existing laws and regulations, more training of staff and judges, and encouraging the use of alternative dispute resolution would improve access to justice and the business environment, build confidence in public institutions and encourage investment.

Investment had not recovered from the lows of the early 2010s before the COVID-19 crisis hit (Panel A). While progress in reducing banks’ non-performing loans (NPLs) has accelerated, they remain high and, with deferred tax credits, constrain banks’ capital and profitability and their ability to finance firms’ working capital or new investments. The insolvency system is highly fragmented, resulting in a large number of strategic defaulters and slowing the resolution of NPLs. Reviving investment will be essential for a sustained recovery from the COVID-19 crisis, to diversify the economy and to boost productivity. The government’s new “Hercules” asset protection scheme is helping banks to dispose of much of their existing non-performing loans, and a newly unified insolvency framework is expected to resolve financial distress more efficiently. However, the COVID-19 crisis risks creating new defaults, and urgent efforts are needed to address the large stock of non-performing loans that will remain and to improve the quality of banks’ capital. Public investment spending has fallen well short of budget plans in recent years. To make the most of the EU’s Next Generation Funds and to double investment spending as planned, the quality and speed of public investment execution need to improve.

Vulnerabilities and areas for reform

1. The 90th percentile is the value of private non-residential and government gross fixed that is above 90% of OECD countries, and the 10th percentile is the value above 10% of OECD countries. The OECD average refers to 2020 or latest year available.

2. Share of adults scoring at least proficiency level 2 in the Survey of Adult Skills (PIAAC). The Survey of Adult Skills defines problem solving in technology-rich environments as using digital technology, communication tools and networks to acquire and evaluate information, communicate with others and perform practical tasks. It focuses on the abilities to solve problems for personal, work and civic purposes by setting up appropriate goals and plans, and accessing and making use of information through computers and computer networks.

Despite high unemployment prior to the pandemic, shortages of in-demand skills impede firms’ ability to add jobs and raise productivity, as employers often cannot find workers with the needed skills (Panel B). Strengthening active labour market programmes, education and professional training would help job seekers find opportunities that emerge after the COVID-19 crisis. Boosting the capacity of public employment services would improve job matching and help tailor training courses for job seekers. Employing more specialised counsellors, developing digital tools, and linking public and private job search agencies would boost the capacity of active labour market programmes. Encouraging tertiary institutions to develop courses adapted to mature age students’ needs, and better assessing and certifying the quality of adult learning courses would help upgrade skills for the post-COVID-19 economy. Developing adults’ digital skills is crucial, given the looming changes from digitalisation and automation.

Students are often poorly prepared for the job market, in particular with weak digital skills. Improving the quality of education should aim at improving incentives to upgrade skills through better quality of contracts for a large share of teachers, increasing the autonomy of education institutions, and rewarding their performance. Recent reforms to better link vocational training with labour market needs can be developed further to strengthen the vocational focus across school, tertiary and adult education.

The young and low-income families, who suffered from high poverty rates before the crisis, are particularly hit by the impact of the pandemic. Continuing to modernise Greece’s social protection programmes and administration to improve accessibility, targeting and effectiveness of administration are key to curbing adverse effects on poverty and inclusiveness.

Greece: Summary of Going for Growth priorities and recommendations

Recent progress on structural reforms

The government has adopted important reforms that address many priority areas. It is reducing tax rates, supported by Greece’s improved revenue collection arrangements and public finances. The COVID-19 crisis has prompted Greece to strengthen the capacity of all areas of the health system, which has received little investment over the past decade. The government is reforming the public procurement framework and the design and execution of public investment projects. However in many areas, the complexity of many reforms, capacity constraints among staff, reticence to assess and reward performance, and the restrictions imposed to contain the COVID-19 pandemic have slowed progress.

DOWNLOAD