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 2nd 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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