EUROPEAN COMMISSION Brussels, 20.11.2019 SWD(2019) 930 final COMMISSION STAFF WORKING DOCUMENT Enhanced Surveillance Report - Greece, November 2019 Accompanying the document COMMUNICATION FROM THE COMMISSION Enhanced Surveillance - Greece, November 2019 {COM(2019) 930 final}



ADEDY: Ανώτατη Διοίκηση Ενώσεων Δημοσίων Υπαλλήλων (Civil Servants' Confederation) ADMIE: Ανεξάρτητος Διαχειριστής Μεταφοράς Ηλεκτρικής Ενέργειας (Greek Electricity Transmission System Operator) ADP: Asset Development Plan AEDIK: Corinth Canal S.A. AEO: Authorised Economic Operator ALMP: Active Labour Market Services AFCOS: Anti-Fraud Coordination Service AFEK: Ατομικό Φύλλο Εκκαθάρισης (personal clearance certificate) AIA: Athens International Airport AMC: Asset Management Company ANFA: Agreement on Net Financial Assets APS: Asset Protection Scheme ASEP: Ανώτατο Συμβούλιο Επιλογής Προσωπικού (Supreme Council for Civil Personnel Selection) BoD: Board of Directors BoG: Bank of Greece CBD: Consolidated Banking Data CCM: Central Committee of Mediation CCP: Code of Civil Procedure CDLF (ΤΠΔ): Ταμείο Παρακαταθηκών και Δανείων (Consignment Deposits and Loans Fund)

CEO: Chief Executive Officer CET1: Common Equity Tier 1 CF: Cohesion Fund CIT: Corporate Income Tax CO2: Carbon Dioxide CoCo: Contingent Convertible Bond CoEx: Committee of Experts CoS: Council of State COSME: (EU programme for the) Competitiveness of Small and Medium-Sized Enterprises CSR: Country-Specific Recommendations DAPEEP: Διαχειριστής Ανανεώσιμων Πηγών Ενέργειας & Εγγυήσεων Προέλευσης (RES Market Operator) DEPA: Δημόσια Επιχείρηση Αερίου (Public Gas Corporation of Greece) DESFA: Διαχειριστής Εθνικού Συστήματος Φυσικού Αερίου (Natural Gas Transmission System Operator) DESI: Digital Economy and Society Index DEYA: Δημόσια Επιχείρηση Ύδρευσης Αθηνών (Athens Municipal Water Utilities) DRG: Hospital Reimbursement Scheme DSA: Debt Sustainability Analysis DTAs: Deferred Tax Assets DTCs: Deferred Tax Credits EBA: European Banking Authority

EBF: Extra Budgetary Funds EBRD: European Bank for Reconstruction and Development ECB: European Central Bank EDA Attiki: Εταιρεία Διανομής Αερίου Αττικής (Natural Gas Distribution Company of Attica) EDP: Excessive Deficit Procedure EFKA: Ενιαίος Φορέας Κοινωνικής Ασφάλισης (Unified Social Security Fund) EFSF: European Financial Stability Facility EIB: European Investment Bank EKAPY: Εθνική Κεντρική Αρχή Προμηθειών Υγείας (National Central Authority of Health Procurements) EKAS: Επίδομα Κοινωνικής Αλληλεγγύης Συνταξιούχων (Pensioners' Social Solidarity Grant) EKXA: Εθνικό Κτηματολόγιο & Χαρτογράφηση (National Cadastral Mapping Agency) ELA: Emergency Liquidity Assistance ELSTAT: Ελληνική Στατιστική Αρχή (Hellenic Statistical Authority) ELTA: Ελληνικά Ταχυδρομεία (Hellenic Post) EMFF: European Maritime and Fisheries Fund EMU: Economic and Monetary Union ENFIA: Ενιαίος Φόρος Ιδιοκτησίας Ακινήτων (unified property tax) EOPYY: Εθνικός Οργανισμός Υπηρεσιών Υγείας (national health insurance body) EPA Attiki: Εταιρεία Παροχής Αερίου Αττικής (Natural Gas Supply Company of Attica) ERDF: European Regional Development Fund

ERGANI: Database of Registered Employment Contracts ESA: European System of Accounts ESKAEN: Εθνικό Συμβούλιο για την Κωδικοποίηση και την Αναμόρφωση της Ελληνικής Νομοθεσίας (National Council for the Codification of Legislation) ESM: European Stability Mechanism ETAA: Ενιαίο Ταμείο Ανεξαρτήτων Απασχολούμενων (Independent professionals Social Security Fund) ETAD: Εταιρεία Ακινήτων Δημοσίου ΑΕ (Public Properties Company) ΕΤΕΑΕP: Ενιαίο Ταμείο Επικουρικής Ασφάλισης & Εφάπαξ Παροχών (Single Social Security Fund for Supplementary and Lump Sum Benefits) ETMEAR: Ειδικό Τέλος Μείωσης Εκπομπών Αερίων Ρύπων (Special Duty for Reduction of Gas Emissions) ETS: Emissions Trading Scheme EU: European Union EYATH A.E.: Εταιρεία Ύδρευσης και Αποχέτευσης Θεσσαλονίκης Α.Ε. (Thessaloniki Water Supply and Sewerage Company S.A.) EYDAP A.E.: Εταιρεία Ύδρευσης και Αποχέτευσης Πρωτευούσης A.E. (the Athens Water Supply and Sewerage Company S.A.) FDI: Foreign Direct Investments FEK: Φύλλο Εφημερίδος της Κυβερνήσεως (Government Gazette Issue) GACS: Guarantee on Securitization of Bank Non Performing Loans GAIAOSE: SOE active in the fields of railway property and rolling stock exploitation, management and development GAO: General Accounting Office (part of Ministry of Finance) GDP: Gross Domestic Product GFN: Gross Financing Needs GGE: General Government Entities

GLF: Greek Loan Facility GRECO: Group of States against Corruption GSAC: General Secretariat for Anti-corruption GSCO: General Secretariat for Coordination GSIS: General Secretariat of Information Systems HBA: Hellenic Banking Association HCA: Hellenic Court of Auditors HCAP: Hellenic Corporation of Assets and Participations HELPE: Hellenic Petroleum HENEX: Hellenic Energy Exchange HFED: Hellenic Fund for Entrepreneurship and Development HFSF: Hellenic Financial Stability Fund HICP: Harmonised Index of Consumer Prices HR: Human Resources HRMS: Human Resources Management Strategy HTA: Health Technology Assessments IAPR: Independent Authority for Public Revenue ICT: Information and Communication Technologies IDIKA: Ηλεκτρονική Διακυβέρνηση Κοινωνικής Ασφάλισης Α.Ε. (Government Centre for Social Security Services) ILIMS: Ολοκληρωμένο Πληροφοριακό Σύστημα Άσκησης Δραστηριοτήτων και Ελέγχων (Integrated Licensing and Inspections Management System)

IMD: International Institute for Management Development IMF: International Monetary Fund JMD: Joint Ministerial Decision KATH: Κεντρική Αγορά Θεσσαλονίκης (Central Market of Thessaloniki) KEAO: Κέντρο Είσπραξης Ασφαλιστικών Οφειλών (Centre for the Collection of Social Security Debt) KEK: Kεντρική Επιτροπή Κωδικοποίησης (Central Codification Committee) KEPA: Κέντρο Πιστοποίησης Αναπηρίας (Disability certification centre) KEPE: Κέντρο Προγραμματισμού και Οικονομικών Ερευνών (Centre of Planning and Economic Research) KPI: Key Performance Indicator KYSOIP: Governmental Council for Economic Policy LCR: Liquidity Coverage Ratio LFS: Labour Force Survey LNG: Liquified Natural Gas MAR: Ministry of Administrative Reform MFI: Monetary Financial Institution MIP: Macroeconomic Imbalance Procedure MoJ: Ministry of Justice, Transparency and Human Rights MoF: Ministry of Finance MREL: Minimum Requirement for own funds and Eligible Liabilities MSS: Motor Service Stations

MTFS: Medium-Term Fiscal Strategy MTO: Medium-Term budgetary Objective MW: Megawatt MWh: Megawatt hour NACAP: National Anti-corruption Action Plan NECP: National Energy and Climate Plan NED: Non-Executive Directors NFC: Non-Financial Corporation NIIP: Net International Investment Position NOME: Nouvelle Organisation du Marché de l'Electricité (electricity auction) NPE: Non-Performing Exposure NPL: Non-Performing Loan NSJ: National School of Judges NSRF: National Strategic Reference Framework OAEE: Οργανισμός Ασφαλίσεων Ελεύθερων Επαγγελματιών (Self-employed Social Security Fund) OAKA: Ολυμπιακό Αθλητικό Κέντρο Αθήνας «Σπύρος Λούης (Olympic Athletic Centre of Athens) OASA: Οργανισμός Αστικών Συγκοινωνιών Αθηνών (Athens’ public transport company) OASTH: Οργανισμός Αστικών Συγκοινωνιών Θεσσαλονίκης (Thessaloniki’s public transport company) OBL: Organic Budget Law OCC: Operational Coordination Centre

OCW: Out-of-Court Workout mechanism OECD: Organisation for Economic Co-operation and Development OGA: Οργανισμός Γεωργικών Ασφαλίσεων (Agricultural Insurance Organization) OKAA: Οργανισμός Κεντρικών Αγορών και Αλιείας (Central Market of Athens) OPEKA: Οργανισμός Προνοιακών Επιδομάτων και Κοινωνικής Αλληλεγγύης (Organization of Welfare Benefits and Social Solidarity) OPS-SEPE: Ολοκληρωμένο Πληροφοριακό Σύστημα - Σώμα Επιθεώρησης Εργασίας (Integrated Information System - Labor Inspectorate) OSDDY/PP: Ολοκληρωμένο Σύστημα Διαχείρισης Δικαστικών Υποθέσεων / Πολιτικών και Ποινικών (Integrated Management System for Judicial Cases / Civil and Penal) OTC: Over-The-Counter PCI: European Project of Common Interest PCR: Price Coupling of Regions PDMA: Public Debt Management Agency PFM: Public Financial Management PIB: Public Investment Budget PIT: personal income tax PPC: Public Power Corporation PRP: Primary Residence Protection PSO: Public Service Obligation RAE: Ρυθμιστική Αρχή Ενέργειας (Regulatory Agency for Energy) RAEM: Ρυθμιστική Αρχή Επιβατικών Μεταφορών (Regulatory Authority for Passenger Transport) RES: Renewable Energy Source

RFA: Relationship Framework Agreement ROE: Return on Equity ROSCO: Rolling-Stock Maintenance Company SAFE: Survey on the Access to Finance of Enterprises SDR: Special Drawing Right SGP: Stability and Growth Pact SLA: Service Level Agreement SME: Small and Medium-sized Enterprise SMP: Securities Markets Programme SOE: State-Owned Enterprise SPA: Single Payment Authority SPV: Special Purpose Vehicle SRSS: Structural Reform Support Service SRSP: Structural Reform Support Programme SSI: Social Solidarity Income SSM: Single Supervisory Mechanism SSW: Special Secretariat for Water STASY: Σταθερές Συγκοινωνίες ΑΕ (Urban rail transport) SUP: Special Urban Planning TAIPED: Ταμείο Αξιοποίησης Ιδιωτικής Περιουσίας του Δημοσίου AE (Hellenic Republic Asset Development Fund)

TEI: Τεχνολογικό Εκπαιδευτικό Ίδρυμα (technical education institutions) TEN-E Regulation: Trans-European Networks-Energy TITLOS: Swap proceeds securitized in the form of a structured finance vehicle TLA: Tunnel Licencing Authority TOMY: Τοπική Μονάδα Υγείας (Primary Health Care Unit) TSA: Treasury Single Account UCoA: Unified Chart of Accounts VAT: Value Added Tax VIPE: Βιομηχανική Περιοχή (SOE whose main activity is the sale of plots of land for industrial use) WWF: World Wide Fund for Nature This report is prepared as accompanying document to the Commission's assessment pursuant Article 3(5) of Regulation (EU) 472/3013 published as Communication from the Commission – Enhanced Surveillance – Greece, November 2019. It was prepared in the Directorate General Economic and Financial Affairs, under the direction of Marco Buti, Director General, Declan Costello, Deputy Director General, and the coordination of Paul Kutos, Head of Unit and Milan Lisicky, Deputy Head of Unit. Contributors: Chris Allen, Vanda Almeida, Laszlo Butt, Giuseppe Carone, Fotini Dionyssopoulou, Matteo Duiella, Sotirios Giannoulis, Christos Gofas, Andras Hudecz, Alexander Ioannidis, Paul Kutos, Eloïse Lecouturier, Milan Lisicky, Dorin Emil Mantescu, Vasileios Maroulis, Benedetta Martinelli, Vasilis Nikitas, Zoltan Petrov, Fidel Picos, Eleni Polemidiotou, Angelos Rammos, Marie-Luise Rüd, Alexandros Tavoutsoglou, Andreas Trokkos, Vasiliki Vasilopoulou, Irene Vlachaki, Rainer Wichern, Alkistis Zavakou. Assistance was also provided by Fotini Louka. The European Central Bank (ECB) Staff participated in the drafting of this report in accordance with the Bank’s competences and thus provided expertise on financial sector policies and macro-critical issues, such as headline fiscal targets and sustainability and financing needs. Staff of the European Stability Mechanism (ESM) contributed to the preparation of this report in the context of its Early Warning System and in accordance with the Memorandum of Understanding of 27 April 2018 on working relations between the European Commission and European Stability Mechanism. International Monetary Fund’s staff participated in the context of its 2019 Article IV surveillance cycle. Comments on the report would be gratefully received and should be sent, by mail or e-mail to: Paul Kutos European Commission Unit ECFIN-F-2

CHAR 14/103 B-1049 Brussels e-mail: ECFIN-GREECE-REQUESTS@ec.europa.eu Commission Staff Working Document 1. Introduction 2. Macroeconomic developments 3. Fiscal and fiscal-structural policies 3.1. fiscal policy 3.2. Tax Policy 3.2.1. ENFIA Valuation 3.2.2. Suspensions of tax on construction 3.2.3. Withholding tax on corporate bonds 3.3. Revenue administration 3.4. Public Finance Management 3.4.1. Arrears 3.4.2. Treasury Single Account 3.4.3. Chart of Accounts 4. Social welfare 4.1. Pensions

4.2. Healthcare 4.3. Social Safety nets 5. Financial sector 5.1. financial sector developments 5.1.1. Financial sector overview and financial stability assessment 5.1.2. Financing of the economy 5.2. financial sector policies 5.3. hellenic financial stability fund 6. Labour and product markets 6.1. Labour market 6.2. producT markets and competitiveness 6.2.1. Business environment 6.2.2. Network industries 7. Hellenic Corporation of Assets and Participations (HCAP) and privatisation 7.1. HCAP 7.2. Implementation of the asset development plan 8. Public administration and justice 8.1. PUBLIC ADMINISTRATION 8.1.1. Appointments of senior management positions 8.1.2. The Executive state law

8.1.3. Improving the human resource management in the public administration 8.1.4. Strengthening the legislative process and legal codification 8.1.5. Controlling the size and cost of public sector 8.2. Justice 8.2.1. Electronic Justice 8.2.2. Alternative dispute resolution 8.3. Anti-corruption 9. Sovereign financing and capacity to repay 9.1. Sovereign financing 9.2. debt sustainability Annex 1: Implementation of Commitments Annex 2: MIP specific monitoring LIST OF Tables 2.1. Summary of the main macroeconomic variables (%) 3.1. Expansionary measures 3.2. Fiscal impact of counter-measures 3.3. Key Performance Indicators of the IAPR (Q1 2019) 3.4. Stock of Arrears (m EUR) 3.5. Arrears clearance plan schedule

8.1. Evolution of public sector staff and wage bill (2009-2019) 8.2. Hiring limits of permanent personnel and indicative ceilings for temporary personnel to be monitored in the enhanced surveillance reports (2018-2023) LIST OF Graphs 2.1. Real GDP and growth contributions 5.1. Bank deposits (left) and total borrowing from the Eurosystem (right) 5.2. Evolution of NPL ratio as a % of total customer loans (left) and NPL stock within second quarter 2019 (right; EUR m) for the Greek banking system 5.3. Bank credit to non-financial corporations and households 5.4. Bank interest rates on new loans 6.1. Digital Economy and Society Index (DESI) 9.1. Credit ratings (left) and 10-year government bond spreads to the Bund (right) 9.2. Main results of the debt sustainability analysis LIST OF Boxes 3.1. Taxation - Benchmarking and Main Issues 3.2. Reform of the Personal Income Tax for 2020 Economic developments and policies in Greece are monitored under the regular economic surveillance framework for euro-area Member States under the European Semester for economic policy co-ordination and under the enhanced surveillance framework according to Regulation (EU) No 472/2013 ( ). Following its second prolongation, enhanced surveillance for Greece is currently in place for six months as from 21 August 2019 ( ). The implementation of enhanced surveillance for Greece acknowledges the fact that over the medium term, Greece needs to continue adopting measures to address the sources or potential sources of economic and financial difficulties, while implementing structural reforms to support a robust and sustainable economic growth. Greece made a general commitment at the Eurogroup of 22 June 2018 to continue and complete reforms adopted under the European Stability Mechanism programme and to ensure that the objectives of the important reforms adopted under the financial assistance programmes are safeguarded. In addition, Greece made specific commitments to complete key structural reforms started under the programme in six key areas by agreed deadlines up to mid-2022, namely (i) fiscal and fiscal-structural policies, (ii) social welfare, (iii) financial stability, (iv) labour and product markets, (v) privatisation and (vi) the modernisation of public administration ( ). In this context, 15 specific commitments were made with a deadline of mid-2019, progress on which is assessed in this report.

This report is based on the findings of a mission to Athens between 23 and 26 September 2019 and regular dialogue with the authorities. The mission was conducted by the Commission in liaison with the European Central Bank ( ); the International Monetary Fund participated in the context of its Article IV surveillance cycle, while the European Stability Mechanism participated in the context of its Early Warning System and in line with the Memorandum of Understanding of 27 April 2018 on working relations between the European Commission and European Stability Mechanism. Enhanced surveillance provides a comprehensive framework for monitoring economic developments and the pursuit of policies needed to ensure a sustainable economic recovery. To this end, this report includes an assessment of economic conditions in Greece (chapter 2); an assessment of implementation of reform commitments given by Greece to the European partners (chapters 3-8); and an update on sovereign financing conditions and debt repayment capacity (chapter 9). This report is issued alongside the assessment of Greece’s draft budgetary plan for 2020 and serves also as a specific monitoring report under the macroeconomic imbalance procedure for Greece, which was identified as experiencing excessive imbalances in the 2019 European Semester. The Eurogroup on 22 June 2018 agreed that the package of debt relief measures for Greece should include incentives to ensure a strong and continuous implementation of the reform measures agreed in the programme. To this end, the implementation of some of the agreed debt measures – the abolition of the step-up interest rate margin related to the debt buy-back tranche of the European Financial Stability Facility (EFSF) programme as of 2018 and the restoration of the transfer of equivalent amounts to the income earned by euro-area national central banks on Greek government bonds held under the Agreement on Net Financial Assets (ANFA) and the Securities Market Programme (SMP) – will be made available to Greece subject to compliance with its commitments on reform continuity and completion, based on positive reports under enhanced surveillance. The return of these income equivalent amounts would be made available to Greece in semi-annual tranches of some €640 m up to mid-2022. The waiver of the step-up interest rate margin, for part of the loans extended by the European Financial Stability Facility, would reduce interest payments by some €220 m annually. It would be waived on a semi-annual basis until 2022 and permanently after 2022. Following the Eurogroup on 5 April 2019, the first tranche of policy-contingent debt measures has been completed, inter alia based on the assessment of the implementation of Greece’s commitments for end-2018 in an updated enhanced surveillance report adopted by the Commission on 3 April 2019 ( ). The current report assesses the implementation of Greece’s specific reform completion commitments for mid-2019 and its general reform continuity commitment, as well as compliance with the primary fiscal surplus targets. It thereby provides a basis for the Eurogroup to discuss the release of the next tranche of policy contingent debt measures, amounting to €767 m. Economic growth in Greece continued in the first half of 2019, and is forecast to remain resilient amid external headwinds. After a weaker-than-expected first quarter (1.1% year-on-year), growth bounced back to 1.9% year-on-year in the second quarter. The lacklustre performance in the first quarter was due to a decrease in net exports as well as a decline in government consumption. These were reversed in the second quarter and thus headline growth reverted to the 2018 average. Despite higher disposable incomes and improving labour market conditions, private consumption declined by -0.7% (year-on-year) in the second quarter of 2019 after slowing down already in the first quarter, indicating that a deleveraging process is still in place for households. The tourist sector shows stable headcounts but a robust increase in spending this year, which bodes well for exports of services in 2019. The recovery is expected to strengthen in the second half of this year and continue in 2020. The very positive developments in recent business and consumer survey data, which increased sharply in particular after the election period, underpin the expectation of a rebound of private consumption already during the second half of 2019. More in general, favourable developments in domestic demand and in particular in investment are expected to support real GDP growth, which is expected at 1.8% in 2019. Supported by a balance-neutral shift away from distortionary to less distortionary taxes, which will be accompanied by social policy measures, growth in 2020 is forecast to reach 2.3% despite a weaker global environment and cool down slightly to 2.0% in 2021 as the output gap continues to close (see Chapter 3.1 for a discussion of the effects of the 2020 fiscal package on growth). Private consumption is forecast to support growth, in particular on the back of a lower tax wedge on labour income. The positive trend in the labour market, which is expected to continue in 2020, should be reflected in the growth of disposable income and private consumption over the medium term. Higher disposable income and strongly positive expectations captured by the European sentiment indicator reaching 108.4 points in August 2019 (the highest level since end of 2007), bode well for a recovery in private consumption in the second half of 2019 and 2020. Furthermore, consumption is expected to be supported by the sustained positive labour market momentum in the first half of 2019. Business and consumer surveys indicate positive expectations regarding higher employment and lower unemployment for the second half of 2019 and the first half of 2020. The tax package announced for 2020 is expected to have a positive effect in 2020 and 2021, especially as they are aim at lowering the tax wedge for lower incomes and decrease the tax burden on labour and capital in general. Simulations run using the QUEST model ( ) show a positive effect of the reforms on consumption trough increased disposable income. As increases in productivity and employment lead to higher wages, disposable incomes rise in the short run as prices only adjust in the medium term. Investment is expected to perform well and to strongly support growth, but comes from a very low level. At the moment, gross financial capital formation in percent of GDP is the lowest in Greece among all EU member states. With a gap of 7.7 percentage points to the euro area average, Greece needs to increase investment substantially. After the decline in real gross fixed capital formation in 2018 (-12.2%) due to lower public investment and its multiplier effect on private investment, investment is expected to bounce back to double-digit growth in 2019 and 2020. The recovery of residential construction is also expected to strengthen. The tax reform package announced for 2020 is expected to have a considerable effect on investment in 2020 and a smaller effect in 2021 and 2022 pushing investment growth further upwards. The QUEST simulations show an increase of investment due to the tax measures as a result of lower expected cost of capital. The increased investment in turn leads to higher employment and productivity. Exports are expected to decelerate due to the external slowdown, which is however likely to be to some extent cushioned by continued gains in export market shares, the relatively low degree of openness and the specific structure of Greece’s exports. Following a strong growth in 2018, exports are expected to grow at a slower pace in 2019 and decelerate further in 2020 and 2021. This is mainly driven by the expected slowdown in Greece’s export markets and is consistent with the projected import demand of Greece’s trade partners. The EU is the most important export market for Greece with the biggest export shares going to Germany, the UK and Italy. Yet, despite the market gains, the economy remains relatively closed: Exports of goods and services are with 36.1% of GDP (2018) substantially lower in Greece than the euro area average of 48% of GDP. Due to the product structure of exports, where the biggest share is concentrated in energy products, food and pharmaceuticals, Greek exports are to some extent cushioned from the direct transmission of declines in external demand as the demand for these is less reactive to the economic deceleration in export markets than for instance the demand for investment goods, which account for a low share of exports ( ). Moreover, Greece has recorded continued gains in market shares in the last years, within the EU as well as with the rest of the world, a trend that is expected to continue and strengthen the Greek export position. Services exports have performed well in 2018 and in the first half of 2019, and are expected to continue to grow as Greece attracts higher spending tourists and the length of stays increases. The liquidation of the Thomas Cook group at the end of September 2019 is expected to have a limited effect on the Greek tourist sector. At the time of the liquidation, the peak season was practically over, which means that the effect on 2019 would be only during the low season in autumn, and therefore limited. For 2020, competitors are expected to fill the gap left by the market exit of Thomas Cook. Graph 2.1: Real GDP and growth contributions Source: European Commission The positive developments on the labour market are expected to continue. Employment is forecast to grow above 2% in 2019 and 2020 and slow down from 2021 onwards. The unemployment rate will continue its downward trend and reach below 14% in 2021. So far, the labour market effects of the recent increase in the minimum wage and the abolition of the sub minimum wage do not seem to have significantly affected the labour market. Inflation is expected to be low in the short term but increasing in the medium term. Due to the VAT reduction in the second quarter of 2019 as well as expected lower growth of oil prices, inflation is forecast to remain low at 0.4% in 2019. The tax reforms announced for 2020 are expected to push inflation upwards to reach 0.6% in 2020 and slightly below 1% in 2021. The closing of the output gap in the outer years is expected to add further upward pressure on inflation. The forecast is subject to upside and downside risks, with the risks to the downside being more pronounced. External factors such as the global slowdown and the continued global uncertainty over trade protectionism could affect Greek exports more than anticipated both in the short and in the medium term. Moreover, the under-execution of both the public investment budget and the ordinary spending, if sustained, might pose a further drag to the recovery in domestic demand. Upside risks are related to the substantial improvement in the business and consumer confidence, which has not materialised in the hard data yet. The projection is contingent upon maintaining the reform path agreed under enhanced surveillance, including reforms in the resolution framework for non-performing loans, designed to ensure a sufficient reduction of non-performing loans and support bank credit. Table 2.1: Summary of the main macroeconomic variables (%) Source: European Commission 3.1. fiscal policy Greece is on course to overachieve the agreed primary surplus target of 3.5% of GDP in 2019, the fifth year in a row when targets would be exceeded. This dissipates concerns that surfaced earlier this year that the adoption of fiscal measures worth 0.7% of GDP in May 2019 would pose a risk for the achievement of the primary surplus target. Shortly after the submission of the Stability Program, the previous government adopted a set of measures, which included: new instalment schemes (with 120 instalments) for debts on taxes and to social security funds and municipalities; a VAT reduction on a selection of items; the reintroduction of a 13th monthly pension payment; and a reversal of an earlier reform of survivors’ pensions. The quality of these measures raised concerns given the objective to make public finances more growth-friendly and to direct a higher share of social spending towards groups who face the highest incidence of poverty. Moreover, the measures also raised concerns regarding their consistency with reforms adopted under the ESM programme. The fiscal impact of the measures adopted in May is likely to be lower than expected in June, mainly because of a reassessment of the cost of new settlement schemes based on incoming data. The European institutions currently estimate the fiscal cost of the measures in 2019 at 0.7% of GDP, compared with 1.1-1.4% of GDP expected in June. The revision mainly derives from an update of the fiscal cost of instalment schemes. Based on actual data, the total amount of enrolled debt is €4.7 bn, which is lower than the expected amount of €6.5 bn. Despite the lower-than-expected participation, the revenues generated by the new scheme are projected to be higher for two reasons. First, compared to what was expected, the new schemes have induced lower debt transfers from the existing schemes (the basic scheme), despite the new scheme being substantially more generous. Specifically, according to the latest data, only about €0.8 bn debt was transferred from the old schemes instead of the €3 bn that was initially expected based on the 2015 experience. This leads to significantly lower revenue fall-out from the basic scheme. Second, the new scheme attracted close to €4 bn worth of debt from outside previous settlement schemes, instead of the previously assumed €3.5 bn. This increases the estimated revenue from this segment. The authorities also decided to remove the pre-legislated tax credit package, agreed in the context of the programme, which was set to enter into force in January 2020. This package included measures that were expected to broaden the tax base and create fiscal space of 1% of GDP for growth-enhancing tax reforms. In view of the very high proportion of taxpayers exempted from the personal income tax (see Box 3.1), the pre-legislated measures aimed to distribute the burden of personal income taxation at a wider pool of taxpayers, while at the same time reducing the high tax rates. Nonetheless, a major base-broadening reform of the ENFIA property tax is in the pipeline for mid-2020 (see section 3.2.1). The new administration maintained the above-mentioned measures, extended the enrolment period for the 120 instalments scheme and adopted a small cut in the ENFIA property tax. In July 2019, the new government adopted a “mini tax bill” which included a reduction in the property tax (ENFIA) up to 30% for certain tax payers, on top of the cut adopted in December 2018, and modifications to the new tax instalment schemes, making them more generous especially for businesses. In particular, the authorities proceeded with the extension of the enrolment period for entering the schemes until end-September (and later to the first week in October), and the increase of instalments for companies to 120 instead of 36 envisaged in the initial plan. The amendments have also reduced the interest charged on the debt during the settlement period to 3%, which is lower than the current bank lending rate. The European institutions expressed concerns in relation to the impact on payment discipline and excessive duration of this ad hoc scheme.

To ensure that the fiscal target for 2019 is met despite the large amount of fiscal measures adopted in May and July, the new administration revised spending ceilings downwards to more realistic levels for the current year. The General Accounting Office, in close cooperation with the line ministries, re-assessed both the spending projects underpinning the ceilings and the spending capacity/needs of the entities. As a result, the ceilings of the ordinary (non-investment) budget were revised downwards and thus, improve the budget balance, by more than 0.3% of GDP in 2019. The categories affected were mainly the consumption expenditure, the primary residence protection subsidy (in view of the longer-than-expected time needed to submit an application and a low processing rate, see Chapter 5) and the lump-sum pensions the cost of which was regularly overestimated in the past years. Regarding the public investment budget (PIB), after taking into account the actual data of the budget execution and having in mind the past experience, the authorities revised downward PIB expenditure by 0.3% of GDP in 2019, to take into account the persistent under-execution of investment expenditure, which was the biggest contributor to the overachievement of fiscal targets in previous years ( ). While the re-adjustment of the ceilings increases the realism and the credibility of the authorities’ fiscal projection, the authorities stepped up efforts to improve budgetary practices. The General Accounting Office (GAO) revised the budget guidelines, which previously required the draft budgets to be based on the previously budgeted amounts. The revised guidelines allowed the 2020 budget to take into account the current year’s execution and also to assess and scrutinise the reasons of the past underspending. Additionally, the authorities conducted a spending review exercise for 2020, receiving technical support. This is an initial but welcome step towards improving the quality of public finances. The authorities are planning to take steps to improve the low execution of public investment. The authorities have adopted legislation to lay down the rules governing the development, management, financing, and implementation of the national component of the PIB. This part of the PIB will be programmed through a medium-term development plan, the “National Development Plan”, mirroring to a certain extent the management system of the EU structural funds. Importantly, the law specifies that the National Development Plan shall not finance recurrent operating costs of the public sector. In addition, the Ministry of Development in close cooperation with GAO, designed an action plan for improving forecasting and monitoring of the PIB. The plan includes more frequent and enhanced exchange of data between the two ministries, monthly updates on the total PIB allocation of expenditure based on actual payments, an increase in the frequency of PIB revenue forecasts from semi-annually to quarterly, and some technical adjustments of the PIB database to facilitate the budget preparation process. The European institutions welcome this action plan and encourage the authorities to carefully monitor its implementation, while at the same time advancing with the introduction of the Unified Chart of Accounts in the PIB (see section 3.4.3). The fiscal outlook for 2019 has also been supported by additional tax revenues. The main revenue categories, which had a better than expected performance in 2019 so far were the value added tax (0.2% of GDP), and arrears on property taxes (0.1% of GDP), while the loss in revenues due to tax refunds was lower (by 0.1%) than previously forecast. The main drivers behind the improvement in the VAT were a stronger than expected export of services (especially tourism) and the increased use of electronic payment methods. Those positive developments were partially offset by the lower-than-expected collection of the personal income tax and other categories. It is to be noted that the authorities extended the discount on VAT rates applicable to certain islands suffering from the migration crisis in June 2019, in line with the mechanism put in place in December 2018. Against this background, the European institutions project the primary surplus, per the definition monitored under enhanced surveillance, to reach 3.8% of GDP in 2019. In the no-policy-change scenario, Greece is expected to overachieve the target by 0.3% of GDP. This estimation takes into account the most recent fiscal and macroeconomic data and the updated cost of the measures adopted so far, but continues to assume full implementation of the (revised) budgetary ceilings. Finally, the forecast assumes that the Public Service Obligation payment of €200 m for PPC will be covered from the contingency reserve. The forecast also does not take into account any one-off measures that might be adopted later in 2019 to use the available fiscal space since they were not announced with a sufficient level of detail. Table 3.1: Expansionary measures Source: European Commission This means that Greece is expected to achieve a general government surplus of 1.3% of GDP in 2019. This is well above the euro area average of a deficit of 0.8% of GDP. Greece has reached a surplus already in 2016 on the back of the substantial fiscal consolidation efforts during the ESM programme but under-executed public investment have also played a role. The achievement of a general government surplus is consistent with the estimated substantial decrease in the structural balance (from 5.8% of GDP in 2016 to 3.0% in 2019), signalling that the underlying fiscal stance is becoming gradually less tight. On the basis of the information included in the 2020 Draft Budgetary Plan, the Commission forecasts Greece to meet the primary surplus target of 3.5% of GDP (a continuous specific commitment), to achieve a general government surplus of 1.0% of GDP and to respect all the requirements of the Stability and Growth Pact (SGP) in 2020. The draft budget includes a package of new expansionary measures worth 0.6% of GDP aimed to reduce distortionary taxes and increase family-oriented social benefits (see Table 3.1). The main tax policy measures included in the package are: a reduction of the corporate income tax (CIT) from 28% to 24% in 2019, a reform of the personal income tax, which inter alia reduces the tax rate from 22% to 9% for incomes up to €10 000 and increases the tax-free threshold for taxpayers with children, a reduction in social security contributions by one percentage point for full-time salaried persons and a reduction of the dividend tax from 10% to 5% ( ). In addition, the package includes a new childbirth allowance of €2 000. The final bill introducing the fiscal package for 2020 as published for public consultation includes some minor additional measures that do not have an impact on the assessment of the fiscal policy for 2020. These measures are steps in the right direction to make public finances more growth friendly. As shown in Box 3.1, the current tax system imposes a very high burden on both labour and capital, and all this with a relatively narrow tax bases. The planned measures are important steps towards addressing the high tax burden. The reductions of the corporate income tax and the dividend tax decrease the overall tax burden on capital, and the personal income tax reform and the cut in social security contributions reduce the tax wedge on labour. On the other hand, the personal income tax (PIT) reform further narrows the tax base for families with children and does not address the relatively high non-taxable allowance for the personal income tax, which was part of the tax reform agreed with the institutions under the ESM programme in 2017 and originally due to enter into force in 2020. Box 3.2 provides an overview of the distributional impact of this tax measure. The expansionary package is projected to have a positive impact on the economy through increased investments, which in turn are likely to boost productivity, employment and wages, and consequently stimulate private consumption as well. As a result, the fiscal balance is expected to improve by 0.1% of GDP. The government has also announced additional measures for 2021 and beyond but these will not be legislated now. These measures include: (a) a further reduction of CIT from 24% to 20%, (b) a gradual abolition of special solidarity tax, (c) a gradual abolition of trade duty for self-employed, and (d) an additional reduction of social security contributions for full-time employees by four percentage points. While these measures would be of high value for stimulating economic growth, they will not be legislated at this point and therefore remain declarations of future policy intentions, whose implementation will be conditional on the available fiscal space. Given the early stage of the aforementioned measures, the European institutions will conduct a formal assessment once the authorities announce officially their plan to proceed with the implementation and more details become available. Table 3.2: Fiscal impact of counter-measures Source: European Commission To neutralise the fiscal impact of the expansionary measures, the authorities presented in the Draft Budgetary Plan a set of ‘fiscal equivalent’ measures mainly of parametric but also of administrative nature and of broadly comparable magnitude (see Table 3.2). The package includes: Increase in the share of electronic payments: Taxpayers will be expected to spend a certain percentage of their income via card payments or bank transfers to businesses; in case of failure to reach this threshold, a tax will apply to the difference. This is a modification of a similar legislation already in place since 2017, with higher thresholds and stronger incentives. In line with the impacts of the earlier legislation, this measure is expected to help decrease VAT evasion and thus raise VAT and other tax revenues. Increase in municipal levies: revaluation of the base for municipal levies and an administrative measure imposing the collection of levies through the central tax system. Adjustment of objective values for the ENFIA property tax taking into account the recent increase in real estate market prices. This measure is projected to lead to higher tax receipts from real estate taxes and other minor taxes (i.e. inheritance tax) by 0.1% of GDP and also improves the efficiency and fairness of the tax. Adjustment of spending ceilings of the Employment Fund to partially finance the reduction in social security contributions: Given the persistent underspending in this category, the adjustment of the appropriations for employment programs by 0.1% of GDP is in reality an elimination of a buffer, which frees fiscal space for growth-friendly measures. In addition to the aforementioned measures, the package includes some one-off measures improving the balance in 2020, such as a reduction of CIT advances in 2019 ahead of the cut in CIT rates in 2020, which will result in lower tax refunds in 2020, and a change in the schedule of the heating oil allowances for the upcoming heating season. While the full set of measures is broadly budgetary neutral, it is expected to improve the quality of public finances and boost growth in 2020. The specific mix of measures included in the 2020 budget represents a growth-friendly tax shift from distortionary to less distortionary taxes, whereby, permanent cuts in taxes on labour and capital (lowering production cost) are compensated by increases in less distortionary taxes, such as the ENFIA property tax, VAT, and municipal charges. Economic literature finds growth multipliers of such tax shifts to be at around 0.3–0.4 in normal times, while the multipliers are generally expected to be substantially higher in a situation of a large output gap ( ). While the expansionary part of the 2020 package amounts to 0.6% of GDP (see Table 3.1.), some of the fiscal equivalent measures arguably do not have any negative macro-economic impacts (e.g. the shift of the CIT advances between years), while raises the effective volume of the expansionary package to about 0.7% of GDP. The calculated impact on GDP growth of the package as a whole is 0.3 percentage points, with a multiplier of 0.4, which is consistent with the evidence mentioned above, even before taking into the situation of the large negative output gap. Overall, the primary surplus target for 2020 is projected to be met. Based on the Commission 2019 Autumn Forecast, the primary balance in the definition monitored under enhanced surveillance is projected to reach 3.5% of GDP. Except from the measures described above, the forecast takes into account the revenue over-performance from 2019, which is partially carried over to the following years, a downward revision of the ceilings in the ordinary budget by 0.3% of GDP, and a revised projection of drawing of EU funds in view of the lower-than-expected absorption of EU funds so far. Regarding the Council of State’s final ruling on the 2016 pension reform, the authorities have committed to sustain the impact of the follow-up legislation within the agreed spending ceilings of the Ministry of Labour for 2020. The Plenary session of Council of State, Greece’s highest court, has reached its final decision regarding several elements of the 2016 pension reform. The Court confirmed the constitutionality of the main pillars of the pension reform and granted no rights for a retroactive compensation of benefits (see section 4.1 for further details) which limits the potential fiscal impact. Yet, additional fiscal costs are possible to occur from the implementation of the ruling regarding supplementary pensions, the calculation of social contribution of the self-employed and the replacement rate of high pensions. The cost of the future legislation bringing the pension reform in line with the ruling will depend on the specific design of the reforms. The authorities declared a commitment in their 2020 Draft Budgetary Plan to sustain the possible additional fiscal costs within the budget ceiling of the Ministry of Labour.

Greece’s public finances however continue to face important fiscal risks related to pensions and public sector wages. In fact, the Second Chamber of the Court of Auditors has recently reached an opposite conclusion regarding pension rights of public sector officials compared to the Council of State decision above (see section 4.1 for further details). Regarding public sector wages, risks related to the broadening of the scope of exemptions from the unified wage grid continue to materialise and remain a source of concern. Recent provisions allow specific categories of personnel to directly be placed at the most senior remuneration grade and their salary progression not be taken into account when calculating the size of the ‘personal difference’, whereas previously adopted exemption as concerns the ‘personal difference’ has been extended further (see section 8.1.5 for further analysis). In addition, the increasing number of temporary staff remains a source of concern (see section 8.1.5 for further analysis). Finally, the potential for overshooting the fiscal target of 3.5% of GDP through underspending in the public investment budget remains but has diminished. 3.2. Tax Policy 3.2.1. ENFIA Valuation Based on the findings of a technical support study, the European Institutions agreed that the valuation exercise to update ENFIA property taxes (a specific mid-2019 commitment) should be rescheduled so as to facilitate making a more substantial reform of the objective property tax values system by the mid-2020 deadline. In particular, the new government agreed to undertake a substantial new reform that will result in a major widening of the property tax base for ENFIA and other property taxes. The reform set out with a detailed timetable is expected to increase the tax base of the ENFIA property tax and improve the fairness and efficiency of the property tax system. The planned reform of the objective property tax values system represents a major widening of the property tax base for the ENFIA and other property taxes by mid-2020. The authorities signalled that they intend to seek technical support for this project. The reform will consist of three parts: (i) an extension of the coverage of zonal system of property tax values by February 2020 to all of the urban planning areas, representing an increase in the coverage of the objective value zones from 85% to 100% of the urban population; (ii) a revaluation of all objective value zones in line with market prices determined by a high-quality standardised national valuation exercise by May 2020; (iii) the revised treatment of non-urban property tax values on the basis of property type rankings by May 2020. Legislative amendments for the implementation of the new property valuation system should be completed by June 2020, in time for the sending out of ENFIA property tax bills in August 2020. Overall, the reform is expected to increase the tax base of the ENFIA property tax by more than 20% and to greatly improve the fairness of the property tax system. Moreover, the convergence of property tax values and market prices will facilitate a review of the current tax rates and thresholds of ENFIA to make further improvements in the tax’s fairness and efficiency. 3.2.2. Suspensions of tax on construction The authorities are considering boosting the construction sector by adopting a set of tax suspensions that is under scrutiny with respect to compliance with EU law. In addition to the tax on property capital gains, VAT on new buildings would be suspended for a three years period. This last measure is currently under assessment with respect to its compliance with the EU VAT Directive. According to the EU law, VAT is charged at each stage of the supply chain, unless an exemption is provided for under the rules as laid down in the VAT Directive. Such exemptions are provided for the supply of buildings but only if these are not new. This entails that the supply of new buildings by a taxable person is subject to VAT, without Member States being able to suspend payment of that tax throughout the chain. Moreover, the VAT suspension effectively risks increasing the proportion of the shadow economy. It makes the purchases of construction inputs the final stage of the VAT chain, instead of the completed house, which means that the sector will need to carry the burden of VAT on its inputs and will not be able to recover it on the finished construction. This will likely increase the size of the shadow economy. The European institutions encouraged the authorities to develop alternative measures to address the problems encountered by the building sector in Greece and take measures to tackle the shadow economy. 3.2.3. Withholding tax on corporate bonds In order to open up corporate bond markets to external investors, the authorities will have abolish the withholding tax on domestically-listed corporate bonds for non-residents from EU and other countries with double taxation conventions with Greece. This brings the withholding tax treatment of listed corporate bonds in line with the majority of other EU Member States. This is likely to give a significant boost to financing through the domestic stock market. The revenue cost of such a measure based on the existing stock of corporate bonds is estimate to be less than €1 million per year. A similar treatment of withholding tax will be adopted for international investors making direct over-the-counter purchases of direct bond issuances made by banks to meet the minimum requirement for own funds and eligible liabilities (MREL). This will help bring down the cost of long-term unsecured funding and support the issuance of capital instruments and other MREL-eligible debt instruments. (Continued on the next page) Box (continued) (Continued on the next page) Box (continued) 3.3. Revenue administration

Given the accumulation of previous delays, the end-2019 target for staffing levels at the Independent Authority for Public Revenue (IAPR) is unlikely to be met, although the allocation of additional resources for new hires is a positive step. The IAPR’s staff level at the end of the third quarter of 2019 stood at 11 751. Although, this constitutes an increase from the beginning of 2019 (11 487) and a reversal from the actual reduction of staff seen in 2018, it remains well short of the target of 12 500 set for end-2019. A positive development has been the Ministry of Finance recent approval of an additional 600 hires of permanent staff to the IAPR. As the end-2018 commitment was not met a number of complementary measures were agreed to further strengthen the IAPR’s capacity and enhance its attractiveness to highly qualified candidates. These complementary measures concerned (i) completion of the human resources reform; (ii) strengthening of the IAPR’s IT capacity; and (iii) improving the IAPR’s housing conditions. Important progress has been made on completing the human resources (HR) reform with key primary legislation expected to be adopted by mid-2020. The HR reform is seen as critical in order to allow the IAPR to recruit and retain highly qualified personnel that it needs, as it is transforming towards a modern tax collection organisation. To date, the appraisal and mobility scheme components of the reform have been completed. What remains pending is the supplementary grading and the wage grid, where primary and subsequent secondary legislation needs to be adopted. The authorities have committed to adopt the grading legislation by end-2019 and the supplementary wage grid by June 2020; thus allowing the new system to come into effect as of 1 July 2020. The Ministry of Finance has confirmed that the needed budget has been allocated in next year’s budget. Once the HR reform is implemented, it will establish a HR management system that is position-based compared to current seniority-based system. This will allow the IAPR to link the grading and remuneration level (defined based on the specific qualifications and skills needed for a specific position) with the job descriptions that have been prepared for each post. A road map will be completed by end of 2019 between the IAPR and the General Secretariat for Information Services (GSIS) that will set out the issues to be clarified as concerns the IAPR’s IT competencies. Following the transfer of the GSIS from the Ministry of Finance to the new Ministry of Digital Governance, its mandate has now been extended to cover all ministries. There is a need to clarify the responsibilities of each organisation, in order to ensure a sufficient level of self-reliance in its day-to-day operations, while at the same time exploiting economies of scale. The road map currently being prepared between the IAPR and the GSIS and that will be finalised by end-2019 is expected to identify the key competencies of each organisation (e.g. security, database administration and procurement of services/equipment). A working group is expected to be established that will be mandated by the Governor of the IAPR and the Minister of Digital Governance to implement the agreed road map. The implementation of the road map, including updating of the Staff-Level Agreement, is expected to be completed by mid-2020. Finally, it is important that the budget allocated to the GSIS will contain a specific budget line for the IAPR with the needed budget, in order to meet the IAPR’s IT needs for the period 2020-2022 (c. €20 million). Authorities have confirmed that an appropriate building has been identified that will allow to host all of the IAPR’s headquarter services that are currently scattered in 13 buildings. The identified building is a public property but not fully utilised. According to the timeline, the IAPR should be able to move in by end-2020. Also symbolically it is important in terms of enshrining the IAPR’s independence, considering that the Governor’s office remains hosted in a building co-shared between the IAPR and the Ministry of Finance. A legal provision securing smooth continuation of the work of the Operational Coordination Centre remains pending and should be adopted as a matter of priority, in order not to further disrupt its operations. The initial results of this innovative structure that brings together officials from various services ( ) involved in combating the smuggling of products subject to excise duties have been impressive. In its first six months, it prevented duty loss of €9.6 million and seized 43 million cigarettes; tobacco equivalent of 60 million cigarettes, and 86 tonnes of fuel. It is therefore important that the continued smooth operation of the Operational Coordination Centre is secured. The proposed legal amendment aims to extend the secondment periods allowed and reinforce the role of its director. Other reforms and action plans are progressing. This reporting period has seen significant capacity building support provided to the IAPR staff/managers, who have been trained in the application of indirect audit methods, transfer pricing techniques, lean methods and tools to be applied by the model collection centre, project management and leadership. In view of this considerable technical support, the IAPR is expected to adopt secondary legislation on the application of indirect audit methods for legal entities, to issue a basic audit manual for tax auditors and to make the model collection centre fully operational by March 2020. The results for the third quarter of 2019 on key performance indicators (KPIs) set by the IAPR presents a mixed picture. The data show that tax debt collection targets are not fully met. On the other hand, the KPIs in most other areas, including collection of debts by the large debtor unit, are met (see Table 3.3). Table 3.3: Key Performance Indicators of the IAPR (Q3 2019) Source: IAPR The Joint Centre for the Collection of Social Security Debt (KEAO) is close to meeting its debt collection target. For the second quarter of 2019, debt collection by the KEAO stood at €628.9 m compared to a target of €630 m. As concerns the strengthening of joint actions between the IAPR and the KEAO, secondary legislation that would allow the KEAO to consider directly applying the IAPR’s classification of the persons/entities considered to have ‘uncollectable’ debt remains pending and needs to be adopted without delays. The authorities amended the 120 monthly instalment scheme. The changes were presented in section 3.1. This scheme was closed in early October and in accordance with preliminary data around 660 000 debtors (out of a total of four million) submitted an application covering debt of €6.4 bn. Out of this debt, it is estimated that debtors covering €4.7 bn of debt actually enrolled into this scheme (i.e. made a first payment within three days after submitting the application). Further, the authorities will amend the basic instalment scheme with a view to facilitating the repayment of tax debts. The current scheme is perceived as too strict in terms of number of payments allowed and does not take into account the income of the debtor when determining their payment capacity. The main changes of the updated scheme that is expected to be adopted, includes increasing the number of monthly instalments to 24 or 48 depending of the type of tax debt and reducing the minimum value of the monthly instalment to €30. Further, the number of instalments granted for some categories of tax debt is also made dependent on the declared income and number of dependent children. Another measure that is expected to provide a disincentive for debtors to drop out and then re-enter the scheme is that the debtor will need to pay two monthly instalments up front while the number of total instalments will remain the same and a penalty is applied through an increase of the interest rate. The revised scheme is also expected to provide an incentive for the debtor to seek a reduced number of instalments as the interest rate will increase gradually. It is important for the credibility of the revised basic instalment scheme that the authorities will keep its commitment that there will be no new special instalment schemes, and that the only scheme available will be the basic instalment scheme. 3.4. Public Finance Management 3.4.1. Arrears At end-August 2019 ( ), the stock of net arrears stood at €1.3 bn, substantially higher than planned. Clearance did not turn out in line with the plan presented in the third Enhanced Surveillance Report, which expected net arrears to come below €0.5 bn by August 2019. Since the end of programme (August 2018), net arrears have decreased by €407 m ( ), however arrears clearance halted since the beginning of 2019. The slow decrease in the stock can be attributed to the creation of new arrears. In addition, the remaining stock of, often aged arrears, is said to be the most difficult to clear namely due to technical and administrative reasons. The current arrears stock is mainly stemming from the health sector and social funds but extra budgetary funds (EBFs), pension claims and local governments play a role. In gross terms, hospitals are also of concern and rose since the end of the programme. Table 3.4: Stock of arrears (m EUR) Source: European Commission Measures to avoid the creation of new arrears (a commitment for mid-2019) are in the pipeline but will require more time to be designed and implemented fully. The follow-up HCA audit in mid-2019 assessed the level of implementation of the recommendations from the 2018 audit. These structural and sectorial measures were designed with a view to avoiding the creation of new arrears. The HCA noted that some progress was made on most recommendations but emphasized that the very short period elapsed between the two audits explained the relatively low rate of implementation. In effect, the follow-up assessment was performed less than one year after the first audit whereas the usual time between audits is around two years. One of the major weaknesses in most of the audited entities is the lack of internal control and internal audit, as well as the low level of standardization and automation of the payment processes. These reforms require more time to be designed and implemented properly, and require careful monitoring involving the HCA. The authorities will shortly establish a Steering Committee to ensure a timely implementation of the clearance plan and the plan against accumulation of new arrears. This is a very welcome initiative that shows the authorities’ commitment and ownership of the reform. The Steering Committee will oversee the full implementation of the structural reforms on arrears management based on the HCA recommendations, monitor the implementation of the proposed targeted actions per subsector and the adopted horizontal measures ( ). It will also be in a position to propose potential solutions where necessary to reach the set targets. This new committee will be composed of representatives from all relevant entities, including the HCA and the GAO. It will convene once per month until all reforms are implemented, at the latest, the next 18 months. A monitoring report will be will be submitted to the Minister of Finance every six months in addition to two interim shorter reports. The European Institutions would encourage the authorities to empower the Committee to make recommendations regarding further audits and to incentivise the entities to clear their arrears. The new administration adopted a broad action plan to clear the remaining stock of arrears by mid-2021 and avoid the creation of new arrears. The plan would bring the net stock down to €1 billion by December 2019. Most of the remaining arrears will be cleared within 2020, with only a small amount of €140 million pertaining to pension claims left by December 2020 ( ). These would be cleared by June 2021, in line with the envisaged digital transformation of new pension claims (see below). Although the plan could be further strengthened for some subsectors (especially for extra-budgetary funds and local governments), the European institutions welcome the specific quantitative targets and intermediate ones that have been adopted for some crucial entities (social security funds and IAPR). Moreover, dedicated actions were designed and initiated in all subsectors. The combination of targeted actions for specific entities and horizontal measures is expected to prevent the accumulation of new arrears. The European institutions urge the authorities to work intensively on the proposed plan. A summary of the actions per subsector is described below. Table 3.5: Arrears clearance plan schedule (1) The hatched part corresponds to a safety margin (conservative scenario) Source: GAO A major source of arrears are social security funds. Their arrears amounted to approximately €402 m in August 2019. The highest amounts of arrears in this subcategory is held by three funds: the Subsidiary Insurance Fund (ETEAEP) with arrears amounting to €101 m, the Organization for the Provision of Health Services (EOPYY) with arrears of €86 m and the Unified Social Security Fund (EFKA) with arrears of €210 m. This latter is also responsible for the clearance of pending main pension claims, amounting to €300 m in August 2019.

The clearance of EFKA’s arrears, which are both health and pension arrears, would rely on an administrative reorganization and on an increase in EFKA’s capacity. The EFKA is a relatively new social security fund that was created through consolidation of a number of social security funds. A significant share of its arrears related to health therefore pertains to amounts that were created by the former social security funds. Their arrears were initially transferred to EOPYY in 2012 and later to EFKA. The necessary legislative interventions needed to allow the EFKA staff to perform the clearance of this backlog have been adopted since 2018, but several other problems remained and resulted in a relatively slow clearance until September 2019. The insufficient staffing, the fact that the existing teams were not fully dedicated to the arrears clearance, the manual calculations of pension rights, the lack of electronic files and other deficiencies stemming from the time elapsed since the creation of these debts are part of the issues encountered. To tackle this situation and to accelerate the clearance of arrears, the recently appointed EFKA administration has presented a set of actions. To address the lack of digitization, the number of staff in the relevant departments has been increased. The departments are also being reorganized and the public sector mobility scheme has temporarily been frozen in order to make sure the EFKA will benefit from a sufficient human capacity ( ). A daily target for arrears clearance has been set to facilitate the monitoring of the quantitative targets and taking corrective actions if necessary. Taking into account these measures, the authorities deems that the existing stock of arrears is expected to decrease by approximately 50% until January 2020 and be completely cleared by June 2021. The clearance of ETEAP’s arrears would rely on digitalisation and administrative reorganisation. The arrears under the ETEAEP are related to pending lumpsum pensions that were consolidated under the ETEAEP. According to the results of the HCA followup audit, the situation has improved compared to the initial audit in 2018 and 75% of the proposed recommendations for the ETEAEP have been completed or are currently in progress. A harmonised IT system is being developed for the claims’ management. The pending adoption of ETEAEP’s organizational chart shall also ensure a more suitable allocation of staff across departments. Following these measures, GAO’s plan shows that ETEAEP arrears are supposed to fall to just €9 m by October 2020. The clearance of EOPYY’s arrears is based on administrative reorganisation and legal actions. The existing stock of arrears in EOPYY comprises overdue payments of both EOPYY itself and entities that were incorporated in EOPYY in 2012. Organizational issues, lack of staff or expertise as well as the difficulties in clearing some of the old arrears have driven the accumulation of these arrears. The HCA follow-up audit states that two of its five recommendations are currently being implemented but the rest is delayed. According to GAO, the full implementation of the recommendations, namely the staffing and training of the Internal Control Unit should improve the clearance path and minimize arrears by November 2020. Concerning arrears of entities that were incorporated in EOPYY, GAO deems the abolition of the statute of limitations that is currently being prepared would speed up the clearance of EOPYY’s debts toward the private sector ( ). Clearance of pension claims relies mainly on digitalising the processing of new pension claims and reassigning more staff to work on the existing paper claims. The stock of unprocessed pension claims amounted to more than €300 m in August and increased in the past few months. The digital transformation would take place in three phases and is planned to be completed by June 2021. At this date, 90% of new pension claims would be processed and awarded automatically. As the transformation progresses, staff would become available to clear the existing paper claims. According to the action plan, around €140 million pension claims would remain in end-2020 and would eventually be cleared by June 2021. The action plan on hospitals, which aims at reinforcing their accounting services and improving the supplies management, could be further enhanced. Despite the fact that hospital arrears are only €25 m in net terms, gross arrears are substantial and put the State at risk of infringing the Late Payments Directive. The main driver of gross arrears in hospitals are the legality issues of hospital expenses. Hospitals tend to obtain material supplies through direct contract awards instead of an open regular tender process. This irregularity in the supply chain has prompted the authorities to systematic ex post legalization of the procedure for securing the supplies. This process has led to frequent delays in the payment of hospitals’ providers. The authorities expect that the implementation of the central procurement system (EKAPY) would solve the issue. Nevertheless, this project has been progressing slowly. Moreover, even if according to the Minister of Health the planned transformation of EKAPY into a public limited liability company (S.A) was supposed to improve its future efficiency, given the timeline of the central procurement reform, a more timely action to address the legality issue of the supplies management would be appropriate. This is all the more important because EKAPY may not be responsible for all hospitals’ supplies in the future. Potential liquidity issues are monitored by the Ministry of Health, according to which their financial services transfer funds to low liquidity hospitals. Separately, another action undertaken to clear the arrears stock and avoid new arrears is the outsourcing of accounting services with a view to supporting hospital accounting offices in cases where existing hospital personnel is not able to handle accounting operations. This had been legislated in summer 2019 ( ) and it is expected to reinforce hospitals’ payments capacities, especially needed in the context of the recent phasing out of ex ante audits performed by the HCA. Targeted measures are currently being undertaken to address identified issues in the local government sector, where arrears amounted to €207 m in August. The most important identified reasons for the creation and accumulation of arrears are related to staffing and expertise as well as legality issues. The lack of internal control and audit is also playing a role. To promote the setting up and operation of internal control units in local government, a technical support project has been undertaken to build internal audit services. This project also includes the development of an internal audit manual and practical guide to support ongoing efforts of municipal and regional entities to develop or further strengthen their internal audit function. It shows encouraging results so far in most of the local governments. Since 2017, 20 local authorities and one decentralised administration have implemented at least one internal audit thanks to this project. Even though is not clear up to date which entities have formally and durably established an internal audit unit in their organigrams, this is a first and very welcome step. The challenge lies now in designing the next milestones to ensure the enhancement and sustainability of the reform. Another technical support project will target the smallest municipalities’ internal audit and is currently running until August 2020 with a view to testing a dedicated tool (inter-municipal cooperation) for the delivery of internal audit services that would take into account smallest municipalities’ characteristics. To ensure greater success for this significant reform, the European institutions would encourage the authorities to make internal audit mandatory for all regions and biggest municipalities. According to the plan supervised by GAO, the above actions are estimated to result in a significant decrease in the stock of arrears in the short-term. By December 2019, arrears are expected to amount to approximately €60 m in net terms. The reasons for accumulation of arrears in the extra budgetary funds (EBFs) subsector differ for each EBF, hence specific targeted actions are currently being undertaken in each of them. EBFs’ arrears amounted to €231 m in August 2019. A full implementation of the reforms suggested by the HCA in combination with horizontal actions and specialized trainings are expected by GAO to minimize arrears before December 2020 and to streamline EBFs’ payment systems. This should also help the EBFs to endorse their full responsibility for payments in view of the abolition of the ex ante payments audits by the HCA. Implementation of the HCA recommendations as regards tax refund claims has been a priority for the Independent Authority of Public Revenue (IARR) and is almost fully completed. Although the clearance entailed solving complex issues, significant progress has been made in this field since mid-2017. The more than six-month-long audit performed by the HCA in 2017-2018 had proved helpful in this regard. Moreover, the amounts of arrears declared by the IAPR are often overestimated due to delays in the calculation of the net stock of arrears. The arrears related to tax refunds claims are currently being collected in a more systematic way and should, according to the IAPR, contribute to the decrease of the pending stock. Necessary actions to clear the backlog of arrears created by the two ministries responsible for the major part of the arrears of the State subsector have been initiated. “State” arrears amounted to €76 m in August. Approximately €28 m of arrears are attributed to the Ministry of National Defence and pertain to the supply of consumables of military hospitals. Their clearance depends on the payment by EOPYY for the provision of hospital services and on settling legal issues. The government is currently taking legislative actions to enhance the procurement process with a view to significantly reducing the stock of arrears by December 2019 and full clearance by February 2020. Arrears of the Ministry of Education amounted to approximately €23 m in August 2019. This Ministry is currently undertaking actions to address the relevant issues and to accelerate payment processes. According to the plan, the authorities will decrease arrears by €16 m by December 2019 and the remaining stock of arrears is expected to be cleared in 2020. Other ministries have reported minor delays in the clearance of arrears, predominantly for administrative reasons and shortage of staff. Nevertheless, continuous assistance and information support by GAO is provided. According to their action plan, this should alleviate the remaining issues and result in minimization the remaining stock of arrears in the short-term. However, the plan presented by GAO does not fully address the weakness noted by the HCA in the audited central state payment services. In conclusion, the new plan tackles the main challenges of the arrears clearance in a satisfactory manner and is accompanied by a number of legal, administrative or IT actions to achieve its objectives. If implemented as endorsed, net arrears would be fully cleared by end-2020, with the exception of €140 m in pension claims ( ) that would be cleared by mid-2021. The remaining ex ante audits by the HCA for EBFs and local governments were phased out as of 1 August 2019, as envisaged. A similar reform was undertaken in line ministries in 2017. An extension was however provided until January 2019 for hospitals and until July 2019 for EBFs and local governments, since they were not fully ready to implement the reform. To support local governments and the EBFs in this transition and to allow them to assume their new responsibilities for the whole payment process, GAO undertook several actions including provision of trainings and information. In addition to the abovementioned measures targeting specific sectors, the Ministry of Interior is preparing to issue guidelines, which, following consultation with the HCA, will be available on the website of the ministry as a supporting material for the authorizing and payment officers. 3.4.2. Treasury Single Account The implementation of the Treasury Single Account, which is an end-2019 commitment, is progressing well. The full implementation of the Treasury Single Account would allow the State to see its cash position nearly in real time. Pursuing this goal will require some further analysis and potentially changes in the financial circuit and payment procedures. The European institutions have encouraged the authorities to provide an action plan for the remaining steps to ensure full implementation of the reform, which so far remains on track. By end-September 2019, half of all general government entities had already opened an account at the Bank of Greece, yet additional steps will be needed to ensure that all entities do so, as required under the TSA. A significant number of general government entities have opened new accounts at the Bank of Greece or reactivated accounts that were inactive or dormant in the last few years. Many of them maintain multiple accounts, either for historical reasons or due to the fact that their internal organizational structure necessitates that they rely on the banking infrastructure of the Bank of Greece ( ). As of end-September, 976 general government entities (i.e. approximately the half of the total) had a cash management account in the Bank of Greece, which is significant progress compared to the June report. This amount correspond approximately to the number of entities relying on State grants. According to the information provided by GAO, all State grants and subsidies are credited to general government entities through their cash management account at the Bank of Greece. This acts as a strong incentive for general government entities to open and use a cash management account at the Bank of Greece, since the use of the funds granted by the State is inextricably linked to the existence and the use of these accounts. In order to make sure the entities that are not receiving State funding through their cash management accounts at the Bank of Greece will effectively follow the general framework of the TSA, GAO has adopted a set of measures ( ). These would act as incentives to open such an account and would need to be applied if necessary. Minor delays have been encountered in transferring excess liquidity of general government entities to the Bank of Greece, which is part of the TSA reform. A Ministerial Decision ( ) and a GAO circular ( ) postponed the deadlines regarding the general cash planning framework for general government entities and the launch of the pilot process with 27 general government entities that was initially planned in July. General government entities are now required to open a cash management account at the Bank of Greece by November 2019. They will have to transfer their cash surpluses from the commercial banking system to the cash management accounts in the Bank of Greece by 11 December instead of July 2019. However, this delay in the implementation of the project should put at risk neither the timeline nor the achievement of the project by end2019. Entities have already been transferring some of their excess liquidity. The Bank of Greece forecasts are that the remaining amount of funds to be transferred in 2019 should not exceed €2 bn. This is not expected to cause any liquidity issues for the banking sector. Progress has also been made on the governance of the TSA project. A new directorate has been created in the Ministry of Finance to manage the TSA project, with a task to monitor general government entities’ cash flow projections based on their approved annual budget. At the pilot stage, monitoring of the requirement to keep at most a 15-day liquidity buffer in commercial banks ( ) will be performed by the GAO on an ad hoc basis, but a proper IT support for the monitoring of all general government entities cash buffers has been required by GAO.

The Bank of Greece payment platform is fully operational and could increase the efficiency of payments and help tackle the excessive amount of cash payments made by the general government. The current Bank of Greece platform allows electronic transfers of funds between cash management accounts and commercial bank accounts. The bulk of the transactions on behalf of general government entities is carried out electronically, but the initiation of the transaction still relies on paper orders. The new “Portal” platform is expected to provide a promising alternative, which avoids the need for paper orders. It could also tackle the excessive amount of cash payments. For reasons of efficiency and to ensure compliance with legislation on anti-money laundering and combatting the financing of terrorism, cash as a means of payment is allowed only for payments via cheques to be cashed-in. However, cheques are used in 7% of general government transactions, or 5.5% of their total volume. This is deemed excessive by the Bank of Greece and signals high tolerance levels embedded in the existing regulatory framework. The introduction of the “Portal” platform could help reducing the use of these cheques and deserves support of the authorities supervising general government entities. 3.4.3. Chart of Accounts The authorities are broadly on track with implementing the Unified Chart of Accounts (UCoA) in all general government entities and moving to accrual accounting by 2023. The UCoA is a key step forward for improving fiscal monitoring, decision-making and reporting. It is also a crucial element in increasing transparency and reliability of fiscal and financial data. The substantial progress achieved over the recent years, also benefitting from technical support, has put a strong foundation for delivering the remaining and most challenging part of the UCoA. The newly defined digital governance policy, together with public finance management and accounting reforms, appears among the priorities of the new administration, which signals a strong political commitment towards the remaining reform agenda. The new administrative and financial classification of the State budget, which was introduced in 2018 ( ), defines single analytical codes for recording expenditures. As for the State budget, the changes were implemented successfully alongside the release of the first audited double-entry financial statement. The 2019 and 2020 budget preparations took place under the new UCoA. GAO remains at a crossroads and crucial decisions still have to be made. By mid-2020, Greece will need to complete the UCoA requirements with deeper economical, administrative and functional classifications. The implementation of the UCoA by general government entities other than line ministries requires progress on the ambitious IT project. The European institutions welcome that the development of a single Enterprise Resource Planning (ERP) common to all central state budgetary entities is among GAO’s priorities for 2020 since it a prerequisite for the success of the reform. In effect, the implementation of the UCoA is a culture-changing reform that has far reaching spill-over effects across general government namely in terms of policy-making and management and offers an opportunity to move towards a better management of public finance. The governance structure of this major public finance management reform is to be reinforced with the appointment of a dedicated Steering Committee, which should begin to operate by the end of 2019. Establishing a governance structure fully dedicated to the UCoA was considered as one of the precondition for successfully rolling out the accounting reform. The European Institutions would however strongly encourage the authorities to align with international best practices by avoiding policy makers to be in a position to decide on accounting standards or policies and by providing assurance that deliberations regarding the UCoA abide by generally accepted governance principles. This is a critical issue touching upon the credibility of the financial statements that are to be delivered. Technical support therefore recommended either instituting a public sector accounting standards board comparable to the Accounting Standardisation Board for the private sector or adopting and abiding by a code of good practice. The implementation of the UCoA by the Public Investment Budget (PIB) was previously identified as meriting progress by end-2019 and was addressed, although greater clarity is needed as to its full implementation in this area. The overall implementation of the UCoA by the PIB is slowly progressing, in particular thanks to closer cooperation between the Ministry of Development and GAO. While the ordinary State budget is executed through individual commitments, the PIB is executed via a multi-beneficiary commitment with a view to maximising spending on investment. Subjecting the PIB to individual commitment rules would be detrimental to this goal, and the European institutions took note of the Ministry of Development’s concerns that the implementation of the UCoA in the preparation of the PIB could increase administrative burden. However, PIB expenditures have to be recorded and reported in accordance with UCoA standards, through the single Enterprise Resource Planning (ERP) for the whole of the State. According to the action plan drafted by the Ministry of Development and GAO, the execution of the PIB will follow the new administrative and financial classification by end-March 2021. However, this action plan is not very specific about the full implementation of the UCoA in the PIB and does not foresee a way forward to integrate the ERP common to all State budgetary entities, whereas this should be a priority. The Ministry of Development responsible for the PIB intends to seek technical support with a view to identifying measures that could possibly be taken in order to align the PIB budget preparation and its execution with the new administrative and financial classifications set out in the Presidential Decree that put into force the new national accounting framework. 4.1. Pensions The Council of State (CoS) has declared unconstitutional some aspects of the 2016 pension reform. The CoS has ruled unconstitutional the contributions for self-employed (20%) in comparison with that paid by employees (6%). Furthermore, the provisions cutting part of the supplementary pensions for overall pensions higher than €1 300 has been found unconstitutional because it violated the principle of proportionality and equality. Also, the replacement rate of pensions especially for high pensions and pensioners who have worked for many years was found unconstitutional. The authorities are elaborating proposals for addressing these aspects of unconstitutionality and have committed to find solutions that contain the cost of the necessary amendment within the budget of the Ministry of Labour for 2020 though it will be challenging. At this stage, as there is no specific proposal, is too early to assess if this will be the case. Nonetheless, the key parts of the 2016 pension reform were found constitutional. On the positive side, the CoS has found constitutional the creation of EFKA and the integration of all pension funds (including the one for civil servants) into EFKA, and the recalculation of all pensions with the new rules (and thus the recalibration of pensions in payment and the recalculation of acquired rights of future pensioners). Moreover, for the aspects of the reform that were found unconstitutional the CoS has not granted the affected persons a right for a retrospective financial compensation. However, the Second Chamber of the Court of Auditors has recently reached an opposite conclusion regarding pension rights of public sector officials compared to the Council of State decision above, which creates an additional uncertainty. Based on the ruling, the solidarity levy for public sector pensioners, the replacement rates of 2016 pension reform and the integration of civil servants and public sector pensioners to EFKA were found unconstitutional. Although the Court of Auditors extensively presented the grounds for considering unconstitutional the relevant provisions of the 2016 pension reform, it abstained from adjudicating the case, choosing instead to refer the matter to the plenary formation of the Court. Should the plenary reach the same conclusion as the chamber and rule that the pension reform law is unconstitutional in this respect, the matter will be submitted before an ad hoc Supreme Special Court of Article 100 of the Greek Constitution, so that the conflict created by the two mutually exclusive precedents may be resolved. The authorities have decided to confirm legislation passed by the previous government that repeals important elements of the pension reforms adopted in 2012 and 2016 and leads to an increase in spending on pensions as a share of GDP. This pertains to the repeal of the 2016 reform of the survivors’ pensions that had modernised and aligned the pension entitlements to standard practices of other EU Member States and the reinstatement of a permanent 13th pension, which had been eliminated in 2012. It will be paid once a year at a level of 30%-100% of current pensions (the highest percentage for pensions below €500 per month and the lowest for pensions above €1 000 per month) and will cost as much as €0.8 bn. These measures will decrease the relative share of social benefits spent on the young and working age population where the risk of poverty is much higher. As regards the implementation of the action plan for the completion of the setup of the unified main pension fund EFKA, which is a mid-2020 commitment, delays have accumulated, and the new administration is launching corrective action. The authorities have planned a revision of the action plan and intend to accelerate the process of digitalisation of the pension award system. They have also started to address delays in the full integration of EFKA local offices, the integration of the different IT systems of the previous pension funds, in the launch of the tender for new IITS, the completion of the full insurance history for social security contributions, all elements that are key for the completion of the EFKA reform. 4.2. Healthcare The authorities have accumulated non-negligible delays with the collection of the 2018 clawbacks, a specific mid-2019 commitment, which has been delayed due to the introduction of the new repayment schedule, though the needed legislation will enter into force shortly. The delays in the start of the collection are due to the decision of the authorities to amend the legislation regarding the maximum repayment period for the clawback, to extend it from an initial maximum duration of 24 to 120 monthly instalments. The authorities have preserved the feature of a minimum floor to the instalments, which are set as a fixed share of companies’ turnover, and instalment schemes are intended for clawback amounts above a certain threshold. Although the longer envisaged duration for the repayment plan, above 5 years, is reserved to a relatively small share of providers and represents only 15% of pharmaceutical clawback amounts, the legislative change still results in an overall dilution of payments, aside from the delay in the start of the procedure, and in an avoidable deterioration of the liquidity situation of the National Health Fund. The necessary secondary legislation (Ministerial Decision) to start the process of collection and clearance of the uncollected amount over the period 2012-2018 (approximately €900 m, with collection to start by 30 November 2019) was signed and will enter into force shortly. Overall, progress in this area is thus to be considered satisfactory but the European institutions have encouraged the authorities to step up the efforts in this area. Progress towards achieving a share of centralised procurement in total hospital expenditure of 30%, a mid-2020 commitment, has been very limited and a planned reconfiguration of the central procurement body (EKAPY) may enable progress at the expense of additional delays. The commitment to strengthen EKAPY so as to reach increasing targets of items to be centrally procured, for instance by appointing the permanent board and completing the staffing, has not been met and the likelihood of reaching the targets under the initially agreed timeline is increasingly unlikely (so far, only about 10% of total spending value of €1.6 bn has been centrally tendered in 2019). Although the authorities have confirmed their intention to proceed with centralised procurement, they are currently reconsidering the features of the recently established EKAPY and are leaning towards the framework of a private-law legal entity with similar features to other agencies (TAIPED, Enterprise Greece, Public Properties Company etc.). Proceeding with the transition from the current status to that of a private legal entity, which it is expected by the authorities to enable EKAPY to operate more flexibly and efficiently in the future, may nonetheless lead to additional delays in the coming months, thereby adding to what was originally an already challenging progress towards the targets. Consolidation of the existing primary health care network by opening the planned 240 primary health care centres (TOMYs), a mid-2020 commitment, does not seem feasible based on current progress. Similarly to the area of centralised procurement, the authorities have so far frozen the opening of additional TOMYs, to reconsider the most suitable structure of delivery of primary health care over the territory. In the next six months, the authorities consider feasible only the opening of at most 10 additional TOMY. This will result in the almost certain failure to meet the deadline for the completion of the TOMYs by mid-2020. As for the fundamental features of the model of primary care, such as compulsory registration with a family doctor and gatekeeping, these would be only gradually introduced, at a pace that is not yet known. The likely delay in setup of a comprehensive primary health care network with compulsory registration with a family doctor, coupled with the preservation of a prevalent side-system based on contracted private family doctors (providing maximum 200 visits per months). This essentially seems to replicate the old model, may undermine the achievement of full coverage and with that, patients’ access to primary care. Lastly, any reconfiguration of the currently planned network has the potential to generate waste as the TOMYs are currently being financed by the Commission. The authorities are considering a number of actions to support the rationalisation of health care spending. Amongst these are the development of a National Cancer Registry, the establishment of a Health Technology Assessments (HTA) Agency to support the existing HTA Committee, the strengthening of the already established Drug Negotiating Committee, stepping up the work on the development of clinical protocols and further building on progress made in updating the hospital reimbursement scheme (DRGs). In addition, the authorities intend to strengthen the role of the National Health Fund as an active purchaser and to commission services efficiently, amongst other things by adopting best practice and rationalising its structure, legal framework and operations. Many of these measures are a continuation of past actions and all represent steps in the direction of a reduction of the clawback, though their impact is expected to materialise only over the medium-long run. In the area of pharmaceuticals, the authorities are delaying further the yearly update of the price bulletin (due in February/March 2019), which usually leads to a downward revision of pharmaceutical prices. The regular publication of the price bulletin has historically been one of the most important tools to reduce pharmaceutical prices. In addition, the authorities intend to eliminate the 25% entry fee for innovative drugs. Both these measures go in the opposite direction than of reducing excess spending and thus, potentially increase the amount of clawback in the coming months. 4.3. Social Safety nets

The new housing benefit for persons living in a rented accommodation introduced at the beginning of 2019 is operating smoothly. The scheme provides a means-tested subsidy to low-income households to cover rental costs. The benefit ranges from €70 to €210 per month, depending on the household size. As of 30 September 2019, some 232 700 households were receiving the benefit, corresponding to more than 600 000 individuals (about 5.6% of the Greek population). In terms of household composition, the largest groups are single individuals (about one third of approved applications), followed by households with 4 members (23%), 3-member households (20%) and 2-member households (16%). About half of the beneficiary households belong to the lowest income group (with equivalent incomes of less than €7 000). About 20% of the applicants (46 500 households) are also beneficiaries of the SSI benefit. The average benefit amount is €120.60 per month, for an average total monthly expenditure of just over €28 million, broadly in line with the annual budget allocation foreseen. The reform of the system of disability benefits is advancing but with significant technical-related delays, outside the control of the authorities. While upgrading and simplification of the administrative processes to determine disability status is progressing, the new approach to determine the disability status based on both medical and functional assessment (specific commitment for mid-2019) is still to be adopted. The Authorities have provided a summary report of the improvements made so far in administrative processes and intend to work closely between the Ministries of Labour, Health and Digital Governance to further digitalise and update procedures. The new disability benefit methodology should have been developed on the basis of an analysis of the results of a pilot project. Unfortunately, delays in the implementation of the pilot have meant that the pilot evaluation has not yet been finished by the World Bank, though it should be received shortly. A revised timeline, detailing the intermediate steps and a final deadline for adoption, will be agreed once the evaluation is received. The implementation of the social inclusion and labour market (re-)integration elements of the Social Solidarity Income (SSI) scheme, an end-2019 commitment, is progressing. The SSI is based on three pillars: (i) income s