Greece needs at least another 36 billion euros ($40 billion) over the next three years from euro-area states and easier terms on existing debt to keep the nation’s finances sustainable, according to an International Monetary Fund analysis.
Even if Greece delivers on reforms proposed by its international creditors, euro countries will have to come up with new financing and ease the nation’s debt load through steps such as doubling maturities on existing loans, according to a June 26 “preliminary draft” debt-sustainability analysis released Thursday.
The Washington-based lender puts Greece’s total financing needs at 50 billion euros from October 2015 through the end of 2018. It also says state deposits in the Greek banking system had declined to less than 1 billion euros at the end of May, before the nation closed its banks and imposed capital controls.
Any weakening of the package proposed by the IMF and its creditor partners, the European Commission and European Central Bank, means Europeans must accept a “haircut,” or writedown on the principal of the loans, according to the analysis. The document’s date is the day before Greek Prime Minister Alexis Tsipras called a surprise July 5 referendum on the creditors’ proposal.
The analysis suggests any new deal is doomed to keep Greece wallowing in debt unless the Greek government and its European creditors can make further concessions. It also indicates the IMF, smarting from a $1.7 billion missed payment by Greece this week, may be reluctant to dispense new money without better prospects that the nation’s debt will be brought under control.
The timing of the analysis will prove controversial, since Tsipras is sure to use it to bolster his argument that Greeks should reject the creditors’ proposal in Sunday’s vote, said Jacob Funk Kirkegaard, a senior fellow at the Peterson Institute for International Economics in Washington.
The IMF is suggesting that “Greece was essentially on track last November until Syriza blew up the political system and now the economy,” while hinting that it wouldn’t welcome working with the anti-austerity party in the future, he said.
The IMF report justifies the Greek government’s position and its persistence in including debt restructuring in any deal with creditors, said Gabriel Sakellaridis, a government spokesman. The report is a “confession” of the bailout’s failure, he said in an e-mail.
In a preface to the report, the IMF cautioned that the document didn’t reflect developments -- including bank closures, capital controls and IMF arrears -- that happened since it was prepared.
“These developments are likely to have a significant adverse economic and financial impact that has not yet been reflected in this draft,” the IMF said. The report hadn’t been agreed to by other parties in the Greek talks, and it was circulated to, but not approved or discussed by, the IMF’s executive board, the fund said.
Under IMF practice, loan programs need to be fully financed for 12 months and a country’s debt must be sustainable. Greece must first pay back its arrears to the IMF before it can access any of the nearly $19 billion remaining on the fund’s 2012 bailout, which expires in March.
The IMF analysis shows how badly Greece’s finances have deteriorated from May 2014, when the fund last assessed the country’s debt. At the time, the lender expected the country’s debt-to-GDP ratio to drop to 128 percent by 2020; the latest report saw a ratio of about 150 percent in 2020.
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