General government borrowing requirement & sources of funding, the need for a post-program precautionary credit facility and the case for OSI
Summary in English
This note provides analysis on a number of crucial issues related to the ability of Greece to meet regular interest and amortization payments on its public debt going forward. In more detail, we take a close look at the projected evolution of the general government borrowing needs and sources of funding in the crucial months ahead (and on a multiyear basis), we analyze the potential size and structure of a post-program precautionary credit facility and emphasize the need for a new package of relief measures (OSI) to further reduce the net present value of public debt and smooth out a pretty demanding borrowing requirement profile post 2022/23. In addition, we highlight the main stumbling blocks that have so far prevented the completion of the present EU/IMF program review, and stress that there is an urgent need to conclude the said review ahead of the new (extended) program deadline of February 28, 2015. That is, to allow the timely release of the next EU/IMF financing tranche of €7.2bn (=€3.5bn IMF + €1.8bn EFSF + €1.9bn ANFA & SMP profits) and prevent any unforeseen cash shortages. All in all, our analysis suggests that, under current planning, there is limited room for major deviations from present fiscal targets as that could severely undermine the government’s cash position and instigate a sharp increase in borrowing needs going forward. As regards the present structural reforms agenda, we note the significant progress made thus far in modernizing the public sector and improving the institutional framework and the domestic business environment. Yet, a range of relevant indicators suggests that the said progress has so far been broadly uneven, while additional efforts are needed to reach the critical mass of reforms that could boost investment activity and improve export performance.
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