A strong upward cycle of the economy may have just begun, with everyone looking at the new business environment that is taking shape, yet a problem from the past has started reemerge in the country: its overly large public sector. Public sector recruitment is growing rapidly, with the size of the state approaching pre-crisis levels, despite the rapid pace of new e-government services.
After the IMF, KEFIM is sounding alarm bells over the issue. In a report published a few days ago for 2021, KEFIM emphasizes that Greece is among the 20 countries with the largest state sector in the world. In particular, Greece lost four places, falling to 146th place among 165 countries in terms of size of the state, an indicator that focuses on how government spending and tax rates affect economic freedom.
It also assesses the extent to which a country relies on personal choice and markets despite state budgets and political decision-making. The survey also found that Greece ranks 78th in the Economic Freedom Index, falling between Kyrgyzstan and northern Macedonia, but the low performance in the public sector "surprised" many who expected something better.
In comments to Business Daily, the director of research of KEFiM, Aristidis Hatzis, said that Greece’s public administration resembles the Lernaean Hydra. "Digitization cuts off a head and two come out. Iolaus needs to burn the severed head, as in the myth", Hatzis emphasizes. However, there does not seem to be any Iolaus’ among the country’s ruling parties.
Evidence shows that the size of the state, as measured by KEFIM in collaboration with the Fraser Institute, has increased in recent years under both the SYRIZA and the New Democracy governments. In 2010 the index was 6.25 and decreased to 4.34 in 2015 after the country's three bailout agreements. However, in 2019 it moved higher again, reaching 5.41.
Fiscal risk
The IMF points to the same risk to the economy and budget. In a report on Greece last May, it warned that the number of civil servants was slowly returning to pre-crisis levels. Authorities should use additional anti-pandemic measures to launch a sustainable improvement in the fiscal policy mix, the IMF said.
It went on to stress the need for new measures to create fiscal space in the medium term, such as broadening the personal income tax base and saving resources on pensions, public payroll and state-owned enterprises, which continue to weigh on the budget.
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