IMF ambitious reforms could potentially unlock higher private investment in Greece
There is scope for expanding the frontier of private investment possibilities in Greece through structural reforms and sound macro-financial policies.
The empirical analysis, in particular, finds that countries tend to invest more if they have a lower debt burden, a smaller service share (as these tend to be less capital-intensive), higher capital account openness, and better regulatory quality.
The high degree of self-employment also seems to be holding back investment, though this by itself is not necessarily a concern. Rather, this could be linked to the prevalence of Greek micro firms that are constrained in their investment due to the size of the markets they serve or because of financing/technology constrains.
Addressing these challenges, via product market reforms that encourage economies of scale and/or trade facilitation that integrates them into global markets could boost Greece’s corporate investment and growth prospects. In turn, higher, more productive, private sector investment would improve earnings for employees and encourage savings.
Thus, household investment could be expected to increase as disposable income grows, in line with higher wages and a more dynamic real estate market.
people, in particular, tend to drive demand for housing but need access to credit, good-paying jobs,
and availability of infrastructure and services (transport, childcare, elder care, and unemployment
benefits) to feel secure enough to invest in a home.
More ambitious reforms could potentially unlock higher private investment without endangering external sustainability.
Some examples include
- overhauling the burdensome judicial system,
- finally completing the delayed cadaster reform,
- adjusting pensions to encourage private savings and labor force participation in older cohorts,
- and tackling on-the-ground barriers to more competitive product markets and closed professions, as recommended by the Hellenic Competition Commission.
The cadaster reform and better insolvency practices introduced by the recent major reform of the Greek insolvency framework, in particular, could energize the long-dormant real estate sector.
Completing long-promised privatization in key public infrastructure could also unlock higher,
more sustainable investment rates, as long as it attracts greenfield projects that strengthen corporate
governance and competition.
Find out more here.