State financing gaps, funding sources & the case for debt restructuring
Summary of views
Key findings & policy implications
Debt sustainability analysis
- Greece’s projected public debt dynamics improved considerably in H2 2014 and in early 2015, mainly due to:
-return of HFSF bank recap buffer (€10.9bn) to the EFSF;
-lower projected interest rates (Euribor, EFSF funding) relative to the mid-2014 EC/ECB/IMF programme reviews; and
-replacement of c. €11bn of external borrowing with lower cost intergovernmental borrowing.
- As a result of the above factors (and assuming that key programme targets had remained achievable):
– cumulative projected decline (i.e., improvement) in the debt-to-GDP ratio of c. 13ppts in 2015-2022;
– terminal debt ratio in FY-2020 & FY-2022 projected at 116.5% & 104.4%, respectively; and
– therefore, no additional debt relief would be needed under the November 2012 framework (IMF Country Report No. 15/165).
- However, significant deterioration in public debt dynamics in recent months, as a result of:
-downward revision in fiscal & privatization revenue targets;
-lower official sector forecasts for short- and medium-term economic growth; and
-other factors i.e., need to rebuild State cash buffers, clear arrears & reduce short-term intergovernmental borrowing.
- As a result of the above developments:
-sharp deterioration of public debt dynamics & sizeable increase in future funding needs;
-cumulative projected increase in the debt-to-GDP ratio of c. 55ppts in 2015-2022; and
-change in official sector’s definition of sustainability:
from a stock concept: debt to GDP ratio 124% in 2020 & well below 110% in 2022 (November 2012 framework); into a cash-flow concept: projected gross borrowing requirement should not exceed 15%-of-GDP /annum in the medium-term……………
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