Greek debt sustainable but plenty of risks – IMF

WASHINGTON, May 10 (BestGrowthStock) – The International Monetary
Fund said on Monday that Greece’s public debt is sustainable
over the medium term but persistent low growth, or even a
moderate economic jolt, could set back the euro zone country.

Under a baseline scenario, Greece’s public debt could peak
at 149 percent of gross domestic product in 2013 and decline
gradually to 120 percent in 2020, an IMF staff paper published
late on Monday said.

In 2009 it reached 115 percent.

The staff report said the increase in Greece’s debt levels
reflects “continued large deficits of the public sector, which
would drop to 4.6 percent of GDP by 2013, low growth and
deflation.”

The report offers the first comprehensive insights of the
IMF’s analysis of Greece’s debt crisis, which prompted a
historic 110 billion euro EU-IMF bailout for the country
earlier this month and a further 750 billion euro ($1 trillion)
emergency package on Monday to keep Athens’ problems from
engulfing other euro zone countries and sparking another global
crisis.

The IMF officially approved its portion of the earlier
bailout money, about 30 billion euros, on Sunday along with a
three-year economic program for Greece that envisages deep
spending cuts and revenue increases.

Financial markets have been highly sceptical that Greece
can meet those targets amid fierce public opposition to tough
austerity measures, which are likely to weaken the economy even
further. But analysts believe the latest emergency package has
at least bought the EU some time, easing concerns that Athens
could default on its debt in the near term. [ID:nSGE6490HH]

The IMF said its debt estimate assumes that the primary
balance will improve to 6 percent of GDP by 2014 and beyond,
from -8.6 percent of GDP in 2009.

IMF staff forecast output will contract by 4 percent in
2010-2011 and growth will reach 2.75 percent after 2015.

The report said while Greece’s average maturity of the debt
is relatively high and there are large rollover needs in the
next three to five years, the average remaining maturity of the
general government debt is eight years.

More than one-third of the debt stock will mature in the
next three years and almost half will mature in the next five
years, it said.

It said of Greece’s total government debt, 98.5 percent is
denominated in euro and 89 percent is fixed-rate debt.

The IMF noted that a 1 percentage point reduction in
Greece’s growth rate each year could increase debt to around
166 percent of GDP by 2020. But faster growth by 1 percentage
point could lower debt levels to 80 percent of GDP by 2020.

Meanwhile, if interest rates were to go up by 200 basis
points they would increase Greece’s public debt to 131 percent
of GDP by 2020, the IMF added.

The IMF staff said it could take time before market
confidence in Greece is restored and estimated that the
authorities have 1 to 2 years to build a track record before
they need to return to the market.

Staff said while the Greek government was fully committed
to meeting targets under the IMF program, there were also ample
risks.

“Fiscal adjustment and the resumption of growth are
expected to offer powerful assistance to place the debt on a
declining path from 2013 onwards,” the paper said.

“That said, there are also substantial risks to the
program. Restoring competitiveness through internal price
adjustment while implementing fiscal consolidation is very
challenging, and the margin to respond to negative shocks is
limited at this early stage,” it added.

The report said Greece’s access to private capital markets
in 2012 and later may be more constrained, and tackling the
country’s deep fiscal problems required strong political will
and public support.

It said while the government were making strong efforts to
address data shortcomings, “the accuracy and reliability of
fiscal and national accounts data remain a concern”.
(For more stories on Greece’s debt crisis and the new EU-IMF
$1 trillion emergency package, click on [ID:nLDE64908S])
Stock Market Money

(Reporting by Lesley Wroughton; Editing by Kim Coghill)

Greek debt sustainable but plenty of risks – IMF