FRANKFURT – Greece’s economic program has made a strong start and key reforms are ahead of schedule, the European Union and the International Monetary Fund said Thursday.

The announcement came after officials completed their first review of the program, which is underpinned by 110 billion euros (about $145 billion) in loans from the EU and the IMF.

“The end-June quantitative performance criteria have all been met, led by a vigorous implementation of the fiscal program, and important reforms are ahead of schedule,” officials said in a statement, but they warned that challenges and risks remain.

The Greek economy will likely contract 4 percent this year and about 2.5 percent in 2011, in line with previous expectations. Inflation is higher than expected because of indirect tax increases, but is expected to decline rapidly.

While the overall deficit target for the end of June was met, the IMF and the EU called on Greece to tighten spending control at the local government level.

“Another key challenge is to further strengthen tax administration, including (reducing) tax evasion by high-income and wealthy individuals,” officials said.

In the financial sector, there has been a moderate deterioration in capital adequacy as nonperforming loans have increased. Agricultural Bank of Greece, also known as ATEbank, was the only one of six Greek banks to fail the European “stress tests” in July.

The Greek government is still unable to access international capital markets except for the placement of short-term Treasury bills. Still, market sentiment is improving.