Greece may be saddled with heavy debt, but a lot of it involves loans provided on very favorable terms. Moreover, the continuing sharp decline in bond yields makes further borrowing an attractive proposition.
There is a small part of Greek debt which is expensive to service and generally matures earlier than loans from the European Financial Stability Facility (EFSF), the European Union’s temporary crisis resolution mechanism, and its replacement, the European Stability Mechanism (ESM).
Loans from the International Monetary Fund (IMF) represent only 2.6 percent of Greece’s debt but are the most expensive by far. That is why the government plans to pay part of that debt – about 3 billion euros – early, with the intention of saving some 70-90 million in interest.
In an interview published in last Sunday’s Kathimerini, Finance Minister Christos Staikouras said the government plans to act on this next month.
Paying back the IMF loan early had also been the intention of the previous SYRIZA government, but Greece’s creditors had temporarily frozen any such discussion as a warning to the government to stop the avalanche of costly pre-election promises.
The previous government had informed the IMF last April that it was planning the early repayment of 3.7 billion dollars, or 40 percent of the total IMF loans. However, it never submitted a formal request to the IMF, the ESM and the Eurogroup.
The new government plans to officially inform the creditors that it wants to repay early some 3 billion out of the total of 8.6 billion in IMF loans, which normally it wouldn’t have to pay back until 2024.
Early payment, Staikouras told Kathimerini, would go a long way toward restoring investor confidence.
Greece’s 10-year bond yield is now below 2 percent and that of shorter-term bonds and T-bills even lower. This compares favorably with the more than 5 percent interest paid on the IMF loans.