Austerity measures could lead to Greek debt default, the European Union warned this week.
Greek Prime Minister Alexis Tsipras announced the government would cut the deficit by a third to 0.8 per cent of GDP in 2022, the same amount it projected last year, and said he would implement structural reforms.
Tsipras’ government has said the budget would help Greece meet its €1.6 trillion ($1.8 trillion) deficit target by the end of the year.
Greece’s Finance Minister Euclid Tsakalotos said the government is looking for an additional €2.5 billion ($2.7 billion) in additional funding from the European Central Bank, which has been the source of uncertainty in recent weeks.
The ECB has not been happy with the way Tsipossas administration has handled its finances, so has requested it to extend the lifeline of its emergency bond programme, the central bank said in a statement.
The extension would bring the ECB’s liquidity support for Greece to €1 billion.
Meanwhile, the IMF warned the country was in a “precarious situation” and called on the Greek government to “immediately” reverse its austerity measures and increase growth.
“This is a challenging and precarious situation.
The country is in a precarious position, with a highly uncertain future, as a result of the ongoing economic crisis, with high unemployment and the continuing economic crisis,” IMF Managing Director Jeffrey Sachs said in an interview with CNBC.
There are already fears that Greece could be forced out of the eurozone if it fails to implement its austerity plans, Sachs added.
Sachs warned that if Greece fails to meet its fiscal targets, the euro area could “go into recession” if the country doesn’t start to slow its economic contraction.
For its part, the Greek finance ministry has said it will not implement cuts to pensions and healthcare unless they are fully offset by spending cuts.
But the IMF said it could not recommend any specific measures as Greece’s debt levels have already risen to unsustainable levels.
While the IMF and the European Commission have been warning Greece about its debt situation, the bloc has said no country is entitled to a bailout.
In a statement on Tuesday, the commission called on Greece to reduce its public debt to at least 30 per cent by 2019.
It added that a Greek government debt reduction target should be reached before the end the year, but said it was “impatient” that Greece is not already at that stage.
Last week, the EU agreed a deal with Greece to increase aid to the country.
The bailout was the biggest of its kind in its history, but it was a symbolic one, with little substance to it.
With its debt already skyrocketing, Greece needs an additional $4 billion to $5 billion, with another $1 billion going to pensions, in order to avoid a collapse of its economy, according to IMF data.
If Greece fails in its debt restructuring and the government’s deficit is not reduced to zero by 2019, it could be at risk of default, Sachs said.