Summary:EXECUTIVE SUMMARY Extended Arrangement: On May 15, 2013, the Executive Board approved a three-year Extended Arrangement under the Extended Fund Facility in the amount of SDR 891 million (563 percent of quota; about €1 billion). Four purchases of amounts equivalent to SDR 74.25 million (about €84 million) each have been made so far, and another purchase of the same amount is proposed to be released upon completion of the fourth review. The European Stability Mechanism has released €4.75 billion (of €9 billion committed), and an additional €600 million is expected to be disbursed in early July. Recent Economic Developments: While still deep, the recession continued to moderate in the first quarter. Unemployment remains high, and mild deflation persists. Conditions in the banking sector are normalizing, although non-performing loans remain very high, constraining the ability of banks to provide credit to the economy. The outlook remains challenging, although with a somewhat milder output contraction expected this year, followed by a more gradual recovery. Overall, the economy remains weighed down by large private sector deleveraging needs. Policy Implementation: The program remains on track. Fiscal targets for the first quarter were met with considerable margins, domestic payment restrictions were fully lifted, and the coop sector was consolidated. The authorities intensified efforts to overcome delays in the implementation of structural measures. Looking forward, there are three key policy challenges: (i) addressing the high level of non-performing loans; (ii) maintaining fiscal sustainability; and (iii) strengthening institutions to support fiscal consolidation efforts and long-run growth. Risks to the program remain significant, in particular those related to still strong macro-financial linkages.
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