Greece’s long-term debt prospects ‘uncertain’: IMF

ATHENS (AFP):  Greece’s long-term debt prospects are uncertain, the International Monetary Fund said yesterday, questioning the country’s ability to maintain high budget surpluses to 2060 under a recent eurozone deal.

“The debt relief recently agreed with Greece’s European partners has significantly improved debt sustainability over the medium term, but longer-term prospects remain uncertain,” the global lender said in a preliminary report on Friday.

Eurozone ministers last week agreed to extend maturities by 10 years on major parts of Greece’s total debt obligations, a mountain that has reached close to double the country’s annual economic output.  In turn, Greece committed to a budget surplus not counting debt repayment of 3.5 percent to 2022, and 2.2 percent to 2060.

“It will be very challenging for Greece to achieve that 2.2 percent primary balance, and at the same time grow at the rates that are envisaged,” IMF mission chief Peter Dohlman told reporters in Athens.

The IMF notes that since 1945, only five euro-area countries have ever been able to maintain an average primary balance higher than 1.5 percent of output for a period longer than 10 years.
Only one, Italy, did so in the context of double digit unemployment rates.

“There are significant risks on the horizon (and) the legacies of the crisis still linger,” Dohlman said.
He pointed to soaring private debt, 20 percent unemployment, a high portion of non-performing loans weighing down Greek banks, and a declining working population believed to be shrinking by 1.0 percent each year.

Dohlman insisted however that borrowing markets are now “wide open” for Greece following the eurozone deal.

After helping put together two reforms-for-cash programmes that forced Greece to oust thousands of civil servants and drastically slash funding for health and education, the IMF is now calling for resources to be pumped back. “There are unmet social spending needs -- education, health,” Dohlman said.

Also speaking yesterday, Dunja Mijatovic, the Council of Europe Commissioner for Human Rights said health and education rights had been adversely affected by eight years of crisis cuts. “The end of the third economic adjustment programme creates an opportunity to reverse the negative effects of the austerity on human rights, which should not be missed,” Mijatovic said at the close of a visit to Greece.

Greece currently owes the IMF around 10 billion euros which it is expected to fully repay by 2024, said Dohlman, a former IMF mission chief to Belarus.

The IMF is now operating in a “consultation mode” and is expected to visit the country for audits twice a year, coordinating with European institutions who will be sending missions every three months.

The global lender expects to issue its sustainability analysis of Greece’s debt in early August.