Inspectors from the IMF, EU and the European Central Bank are likely to recommend releasing a vital tranche of aid to Greece but Athens must first do more to convince them it can implement reforms, a senior official from the troika said on Wednesday.

Without the aid, Athens could run out of cash as early as next month, provoking a swift default that would drag the euro zone deeper into a debt crisis already shaking financial markets worldwide.

The inspectors resumed their review last week, combing through new austerity plans nearly four weeks after leaving the country over disagreements on the reforms needed to put its derailed finances back on track.

We are making progress but slow progress. The main reason is they (the government) need more time, the official told Reuters, speaking on condition of anonymity. We are waiting for details on how reforms will be implemented.

Asked if there was any chance that the 8-billion euro tranche of aid would not be released to Greece, the official said: There's always a risk, it cannot be taken for granted. But I believe in the end we will make it.

The ruling Socialists announced at the end of September that they would speed up plans to shrink the state sector, increase income taxes and prolong a property tax to plug fiscal gaps and lure the inspectors back to Athens.

Some of these measures -- such as a labor reserve plan to put tens of thousands of state workers on the road to redundancy -- are just being drafted now and the troika needs detailed information on how they will be implemented and what their fiscal impact will be, the official said.

They are developing new measures as we go along, the official said. Some measures that affect next year's budget are not fully evaluated.

Talks between Greek officials and the inspectors are progressing well on structural reforms and on next year's budget, but are not over, the official said, adding: So far we have not closed any of the chapters.

The EU needs to get a clear picture of Athens' finances in 2013 and 2014 for its ongoing review of a second bailout agreed in July, and could ask banks to take a bigger loss on the Greek bonds they own if the country's financing needs for these two years turn out to be bigger than expected.

We have to be sure that the mid-term fiscal strategy is on track, the official said.

TAXES

Greece acknowledged this week that it would miss its 2011 budget deficit target, increasing concerns in markets over the likelihood of a default. It said the deficit would reach at least 8.5 percent of GDP, missing a 7.6 percent target.

But the EU, IMF and ECB officials have not yet completed their own review of this year's deficit.

It depends on whether people pay their taxes, the official said. If they do, we're fine. There are many new measures coming into effect at the end of the year, we have to see how much money will be raised.

The troika is still discussing with Greece a plan to shrink the public sector workforce, as well as a reform of private sector labor rules. The official said the inspectors had never asked for the abolition of collective wage deals, contrary to some local media reports.

We also don't want to abolish the minimum wage agreement. But we asked the government to start discussions with social partners to revise it, the official said. Unemployment is at nearly 17 percent, we have to do something for the lower skilled workers..

Greece is running late on a privatization target agreed with the EU and IMF because of delays in setting up the fund in charge of handling the sell-offs, the official said.

The troika has repeatedly encouraged consolidation in the Greek banking sector <.FTATBNK> and the official said it hoped to see more such developments after a merger deal between Alpha Bank and Eurobank .

We hope there will be more, both domestic and international, the official said.

The official could not say when EU, IMF and ECB inspectors would end their review and deliver their verdict on the aid tranche. Greek officials have said they expect them to stay in Athens till the end of the week.

Euro zone finance ministers and the IMF board will decide on releasing the aid after the inspectors conclude their review and draft a report on Greece's progress. Euro zone finance ministers on Monday postponed the aid payment until mid-November, piling pressure on Athens to deliver on reforms.

(Reporting by Ingrid Melander; Editing by Andrew Callus)

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