Addressing the debt burden of the beleaguered nation will require
significant debt relief from European institutions, including dramatically
extending the grace periods and maturities of the loans, the IMF said in its
annual report on the Greek economy.
The IMF board is due to discuss the confidential report, which includes a
debt sustainability analysis, on February 6, after which the findings will be
Even with full implementation of the economic reforms the country has
agreed to, "Greece’s debt is highly unsustainable" and "will become explosive in
the long run," as the government will have to replace highly subsidised official
financing with market financing at much higher rates, the IMF said.
The pessimistic report, though in keeping with the fund’s repeated
statements on the topic, makes it less likely the IMF will participate in any
new European loan deal for Greece.
Months of bickering have delayed progress on Greece’s 86-billion-euro
(US$92.4 billion) bailout program agreed in 2015 and officials are increasingly
worried that elections this year in the Netherlands, France and Germany could
further poison the efforts.
The IMF report says that in order to "provide more credibility to the debt
strategy for Greece, further specificity will be needed regarding the type and
scope of debt relief to be expected" from Europe.
This must include "ambitious extensions of grace and maturity periods, a
full deferral of interest on European loans, as well as a locking in of the
interest rate on a significant amount of European loans ... to put debt on a
sustained downward path."
Dispute with eurozone
The IMF calls for extending the grace period until 2040, during which time
Greece would not be required to make any debt payments, and extending the term
of the loans to 30 years, in some cases, to 2070, dramatically longer than what
Europe agreed to in 2012.
Europe’s economic commissioner Pierre Moscovici said he would wait for the
official release of the IMF report before commenting, but expressed confidence
in the prospects for agreement.
"The IMF has a constant stance on the need to lower Greek debt, and we are
working on it," he said.
"The European Commission is therefore confident about the approach taken by
the Europeans and will continue to work with Greece, euro-zone countries and
other institutions to further reduce Greece’s debt."
The fund and the 19-nation single currency area are battling over how much
debt relief Greece needs, and over economic targets required of Athens that the
IMF says are too stringent.
The IMF, headed by the tough-talking Christine Lagarde, currently traveling
in Africa, refuses to lend further to Greece without significant changes to the
eurozone’s demands, as the institution’s rules prevent it from lending unless
the debt is sustainable.
At the heart of the dispute is a demand by the eurozone that Greece deliver
a primary balance, or surplus on public spending before debt repayments, of 3.5
per cent of GDP, far in excess of the 1.5 per cent the IMF says is
Greece can’t outgrow debt
Even with ambitious structural reforms to the economy, beset by a high
pension burden and tax evasion, "Greece cannot grow out of its debt problem" on
its own, the IMF said.
And, the report points out, "The Eurogroup committed to additional debt
relief for Greece."
The fund said Greece does not require further spending cuts, but should
pursue "more ambitious" reforms in other areas including to its pension system,
and improving tax collection while reducing tax rates.
Output of the economy has contracted by more than 25 per cent since 2008
and unemployment is the highest in the eurozone, at over 20 per cent.
The IMF is projecting a rebound in growth to 2.7 per cent this year, after
just 0.4 per cent in 2016, and continue above two per cent through 2020, but the
Greek government expects growth to average near three per cent through 2019. -