Bond markets responded calmly on Friday to the debt sustainability analysis (DSA) of the International Monetary Fund, which found Greece’s debt exceptionally unsustainable, while deciding to participate in the Greek bailout program with 1.6 billion euros. The markets’ reaction allows for the government to issue the five-year bond as early as on Monday.
The DSA reiterates that the eurozone’s commitments to secure the sustainability of the Greek debt are not sufficient. The IMF estimates the debt will slide to 160 percent of gross domestic product in 2020 and to 150 percent in 230, before soaring to 190 percent in 2060. Servicing the debt will exceed 15 percent of GDP in 2028, reaching as high as 45 percent in 2060.
The Fund argues that the estimates of Athens and the eurozone on growth rates, primary surpluses and other parameters affecting the debt are optimistic and insists its own views are realistic, saying that Greece has historically been weak in implementing reforms and cannot support high primary surpluses for many years.
It goes on to say that revenues from privatizations will not exceed 2 billion euros by 2030 and believes that the state will not collect any substantial funds from the sale of the bank shares it acquired in the last few share capital increases. It therefore calls on the eurozone to reach an agreement on a realistic strategy for easing Greece’s debt.
The IMF’s proposal for a new stress test on Greek banks and a fresh asset quality review were met with a clear dismissal on Friday by a European Central Bank spokesman, who pointed to Frankfurt being the sole monitoring authority that decides on such issues.
The strong ECB response was also addressed at the IMF’s estimate that Greek lenders will require fresh recapitalization to the tune of 10 billion euros.
On Friday Standard & Poor’s stopped short of raising the country’s credit rating, affirming it at ‘B-,’ but pointed to an upcoming upgrade switching Greece’s outlook from stable into positive.