Greece’s government debt remains highly unsustainable and will be “explosive” in the long run, requiring a more credible debt relief plan from Europe, the International Monetary Fund said in a report obtained by AFP.
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 made public.
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 subsidized 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 ($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 told AFP.
“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 percent of GDP, far in excess of the 1.5 percent the IMF says is feasible.
– 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 percent since 2008 and unemployment is the highest in the eurozone, at over 20 percent.
The IMF is projecting a rebound in growth to 2.7 percent this year, after just 0.4 percent in 2016, and continue above two percent through 2020, but the Greek government expects growth to average near three percent through 2019.