Greece Macro Monitor (18 June, 2014) Full coverage of projected financing gap possible up to at least 2020, without recourse to a new aid package from official lenders
In their latest reviews of Greece’s economic adjustment programs, both the European Commission and the IMF project a financing gap in the general government accounts to arise in the second semester of next year, amounting to ca €12.5bn over the period 2015-2016.
In addition, the updated debt sustainability analysis (DSA) presented in the most recent IMF country report for Greece (June 2014) forecasts the debt ratio to reach 127.7%-of-GDP in 2020 and 117.2%-of-GDP at the end of 2022. These are somewhat higher levels than the respective targets set at the November 2012 Eurogroup (ca 124% in 2020 and substantially below 110% in 2022). It should be noted though that the latter targets assume a number of contingency (i.e., unidentified) measures corresponding to cumulative debt relief of ca 7ppts-of-GDP until 2022. Furthermore, the troika’s latest projections for the Greek debt ratio do not fully incorporate a number of potential strategies currently sought for the coverage of the projected financing gap. Among others, these include, future bond issuance, internal liquidity sources and a new debt relief package expected to be agreed with official lenders before the end of this year. This note presents an updated analysis on Greek public debt, taking into consideration the last troika projections. It demonstrates that, under broadly realistic assumptions, the general government financing requirement can be covered up to (at least) 2020, without necessitating recourse to a new (3rd) financing program from official lenders. Furthermore, it shows that these strategies can broadly facilitate attainability of the debt ratio targets set at the Eurogroup of November 2012. Of course, all these assume that the agreed fiscal targets are met and the projections of the revised troika macroeconomic scenario are vindicated.