The International Monetary Fund has warned Greece that it will have to step up the pace of its economic reforms in order to avoid derailing the efforts being made to cut its debt mountain.

Underlining growing concern in Washington at the deteriorating state of Greece's public finances, the IMF's mission chief to Athens, Poul Thomsen, said the emergency bailout package pieced together in May 2010 was failing.

"The view that seems to be taking hold is that the government programme is not working," Thomsen told a conference in Athens on Wednesday .

"The programme will not remain on track without a determined reinvigoration of structural reforms in the coming months. Unless we see this invigoration, I think the programme will run off track."

In the financial markets, Thomsen's comments led to a fall in the value of the euro and an increase in the interest rate Greece has to pay to service its national debt, which has soared to 150% of annual output as the country faces the prospect of a third year of recession.

IMF and EU officials have been in Greece for the past week preparing the ground for a fresh dose of financial assistance after it emerged that Greece was struggling to meet the interest payments on its debts. European finance ministers have been in talks for most of the past week in an attempt to prevent Greece from defaulting on its debts, a course of action described by a senior EU policymaker as a "catastrophe".

George Papaconstantinou, the Greek finance minister, vowed to press ahead with budget consolidation efforts. He raised the prospect of firing some public sector employees and said the government would seek talks with the opposition to discuss ways out of the crisis.

Under its rescue terms, Athens was to cut its deficit to 7.6% of GDP this year. Without further measures, Thomsen said, Athens would not be able to get it much below 10%.

Greece's growth prospects have been hampered by the severity of the austerity measures insisted upon by the IMF and the EU in return for last year's €110bn bailout. Prime minister George Papandreou's government is struggling to rein in rampant tax dodging and has come under pressure to sell off tens of billions of euros in state assets to plug budget holes.

In his first public comments since arriving in Athens, Thomsen said privatisation rather than higher taxes was the best way to tackle Greece's financial woes. "The tax burden is already very high ... This has to come from structural reforms," he said. The IMF official expressed doubts about Greece's ability to wean itself off support from the IMF and the EU by returning to the bond markets as planned next year, but did say that the tough reforms so far implemented had helped the country's exports to become more competitive on world markets.

Papandreou vowed to launch a "fully fledged attack on tax evasion" saying it not only hurt growth but also caused social injustice and public belief in lack of fairness.

EU and IMF inspectors are still waiting for Greece to fill gaps in its proposed budget fiscal and privatisation plans – which are key to releasing the next tranche of aid – and will continue talks this week, sources have said.

Jürgen Stark, a European Central Bank executive board member, also told the conference that a debt restructuring of any kind would not solve Greece's problems.

"A debt restructuring will wipe out part or all the capital of Greek banks, so it is a recipe for catastrophe," he said. "If the [economic adjustment] programme is implemented one-to-one, then debt sustainability is ensured and Greece is solvent."