IMF warns Greece needs debt extension, may require writedown


The International Monetary Fund warned on Thursday that Greece would need an extension of its European Union loans and a potentially a large debt writeoff if it grows more slowly than expected and economic reforms are not implemented.

The IMF warning in a preliminary draft of its latest debt sustainability report came as Greece readies for a Sunday referendum on an international bailout deal that Prime Minister Alexis Tsipiras has urged voters to reject.

The Washington-based institution, which is part of a "troika" that includes the European Commission and European Central Bank that is overseeing the bailout, said that even if Greek policies came back on track, loans made by Europe "will need to be extended significantly" and that the country would need further concessional financing.

The report was made based on assessments last week, before Greek banks have been closed and the country had defaulted on an IMF repayment.

"We cannot go to our board to complete this review unless we have a comprehensive program," said a senior IMF official in a conference call, adding that debt relief from creditors would be essential.

The IMF said Greece would need an additional 36 billion euros ($39.89 billion) in European funding from total additional financing needs of 50 billion euros due to policy slippages and the latest proposals from Athens.

Even under the most optimistic current IMF projection and with concessional financing through 2018, it said Greece’s debt to gross domestic product ratio was seen at 150 percent in 2020 and 140 percent in 2022.

"Using the thresholds agreed in November 2012, a haircut that yields a reduction in debt of over 30 percent of GDP would be required to meet the November 2012 debt targets," the Fund said.

The Fund believes that given the fragile debt dynamics of Greece, one option would be to extend the grace period to 20 years and the amortization period to 40 years on existing EU loans and to provide new official sector loans to cover financing needs falling due on similar terms at least through 2018.

The IMF official told the conference call that the debt analysis had been shared with both Greece and the European Commission, although European forecasts of financing needs were lower than those of the Fund.

"An extension of maturities, this is a very dramatic move," he said.

Under an IMF projection where real economic growth was lower, at just 1 percent, Greece’s debt would remain above 100 percent of GDP for the next three decades, it said, even with a lengthening of maturities and new loans on concessional terms.

"A lower medium-term primary surplus of 2.5 percent of GDP and lower real GDP growth of 1 percent per year would require not only concessional financing with fixed interest rates through 2020 to cover gaps as well as doubling of grace and maturities on existing debt but also a significant haircut of debt," it said, "for instance, full write-off of the stock outstanding in the GLF facility (53.1 billion dollars) or any other similar operation."