State financing needs and sources in 2017 and beyond…

Dr. Platon Monokroussos, Chief Market Economist, Deputy General Manager, Eurobank Ergasias S.A

Greece Macro Monitor (12 January 2017)

State financing needs and sources in 2017 and beyond; evaluation of the agreed short-term debt relief measures & updated DSA

Here follows a Summary in English:

• Greece’s general government gross financing needs are projected to reach €16.9bn in 2017 and €9.6bn over the period January-August 2018, with the ensuing financing gap being comfortably covered by committed ESM financing under the present bailout. That is, assuming a swift resumption of official loan disbursements.
• The most challenging month of 2017 in terms of debt service costs is July, with respective amortization and interest payments expected to amount to c. €7.4bn (=€6.6bn bond and loan amortisations + €0.8bn interest payments). Average debt service payments over the rest of this year (excl. July) are projected at slightly less than €0.75bn per month.
• The abovementioned amounts suggest that State cash reserves should be adequate to cover interest and amortisation payments on public debt falling due over the first 4-5 months of 2017, even in the absence of new external financing from the official sector.
• Yet, a swift completion of the 2^nd programme review without further significant delays is of crucial importance to prevent a renewed deterioration of domestic economic climate and maintain expectation for Greece’s eventual inclusion in the ECB’s quantitative easing program.
• Event in the absence of additional debt relief in the context of the medium-term measures agreed at the Eurogroup of May 25, 2016, the Hellenic Republic should be able to cover its projected funding gaps over the 5-year period following the completion of the present programme (2019-2023) through limited market borrowing (estimated at c. €7.5/annum on average).
• That is, assuming, inter alia, that: domestic economic growth broadly evolves in line the current baseline scenario; the present targets for the primary balance (3.5% of GDP) and privatization revenue over that period are maintained; and, crucially, Greece restores some  market access before the termination of the present bailout programme.
• Required market access to cover projected funding gaps under the present baseline scenario will increase significantly in outer years (averaging more than €20bn/annum over the period 2023-2033, €50bn/annum in 2034-2043 and €80bn/annum or more thereafter), rendering Greece’s fiscal position highly unsustainable under the present operational definition of sustainability.
• This could be addressed through lower interest rates on official loans and a further sizeable re-profiling of Greek debt service payments in the context of the relevant framework agreed at the 25 May 2016 Eurogroup.
• Besides being necessary for restoring debt sustainability, a more sizeable debt relief could accommodate a relaxation of the medium-term fiscal targets, allowing the Greek economy the necessary fiscal space to grow out of the current recession.

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