Greece needs to reduce the proportion of its budget spent on “unaffordably high” pensions which are paid for by high tax rates to stimulate economic growth, the International Monetary Fund said on Tuesday.

Releasing the full staff report from its first annual review of Greece's economic policies in nearly four years, the IMF said that Greece instead should work to broaden its tax base and reduce tax rates, while providing more targeted spending to support the poor and other essential public services.

“We are saying that Greece needs to take some fairly difficult decisions to make its budget much more growth-friendly,” IMF European Department Director Poul Thomsen told reporters on a conference call.

He said that too many Greek households are exempt from taxation under current policies, while spending on infrastructure, capital investment and other critical needs has been cut to very low levels in an effort to meet fiscal targets under the country's current bailout program. Such investments and resources are needed to help modernize Greece's economy, he added.

Under the constraints of the Greek government's third financial bailout since 2010 and an aging population, the country's long-term economic growth is only expected to reach about 1.0 per cent, the IMF said in the report.

The Fund also reiterated its longstanding view that Greece's debt is unsustainable, even if all of the Fund's prescribed reforms are implemented, and debt relief from European lenders is required.

It projected government debt would reach 160 per cent of gross domestic product by 2030, but would “become explosive thereafter.”

The IMF has insisted on additional debt relief and reduced fiscal targets before it participates financially in Greece's current bailout program. Germany, which faces national elections, has resisted such moves.

Thomsen told reporters that in his view there is now “more of a consensus” on the need for Greek debt relief.

“If you compare what we were a year ago, there is a narrowing of differences of views on debt sustainability and on what is needed,” he added.

Golden Dawn rally in Athens, Greece Show all 9 1 /9 Golden Dawn rally in Athens, Greece Golden Dawn rally in Athens, Greece Nikolaos Michaloliakos, leader of the Golden Dawn party, addresses supporters in front of the party's offices in Athens during the commemoration of the death of three officers in 1996 during the Imia crisis that brought Greece and Turkey to the brink of war Getty Images Golden Dawn rally in Athens, Greece Supporters of Greece's far-right Golden Dawn party lift torches and wave national and party flags during an annual rally to commemorate the 21st anniversary of the Imia dispute, in Athens, Greece Reuters Golden Dawn rally in Athens, Greece Golden Dawn supporters wave flags and chant slogans in front of the party's offices in Athens to commemorate the death of three officers in 1996 during the Imia crisis that brought Greece and Turkey to the brink of war Getty Golden Dawn rally in Athens, Greece Supporters of Greek ultra nationalist party Golden Dawn hold Greek national flags and torches during a gathering of Greek nationalists in central Athens, to commemorate the death of three Greek military officers Getty Images Golden Dawn rally in Athens, Greece Supporters of the Greek ultra nationalist party Golden Dawn hold Greek national flags and torches during a gathering of Greek nationalists in central Athens, to commemorate the death of three Greek military officers Getty Images Golden Dawn rally in Athens, Greece Protesters hold banners in a march to the US Embassy and to the offices of far-right wing party Golden Dawn, during an anti-fascist rally organized by leftist movements in Athens, Greece EPA Golden Dawn rally in Athens, Greece Protesters hold banners in a march to the US Embassy and to the offices of far-right wing party Golden Dawn, during an anti-fascist rally organized by leftist movements in Athens, Greece EPA Golden Dawn rally in Athens, Greece Supporters of Greece's extreme right Golden Dawn party raise torches during a rally commemorating a 1996 military incident which cost the lives of three Greek navy officers and brought Greece and Turkey to the brink of war, in Athens AP Golden Dawn rally in Athens, Greece Supporters of Greece's extreme right party Golden Dawn attend a rally in Athens AP

Jeroen Dijsselbloem, president of the Eurogroup of euro zone finance ministers, on Tuesday said the IMF's view on Greek debt was too pessimistic and ruled out any further debt relief before mid-2018, when the current bailout program ends.

At the same time, a Greek government spokesman said that Greece would not yield to “illogical” demands from the IMF for “precautionary” austerity measures.