The IMF position on Greece – explained

http://www.theguardian.com/news/datablog/2015/jul/15/the-imf-position-on-greece-explained

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Just hours before the Greek parliament’s crucial vote to push through fresh austerity measures required by the new bailout plan, the International Monetary Fund released a devastating assessment of the beleagured nation’s finances.

Warning that Greece will require far more generous debt relief than is currently on offer from its creditors, it predicted that public debt is likely to peak at 200% of its national income within the next two years.

Related: Greek crisis: MPs debate bailout after IMF demands debt relief - live updates

Putting into question its involvement in the new deal, the IMF suggested that Athens should receive a 30-year grace period before it has to start paying off its debts.

The latest grim prognosis from the Washington-based fund represents a significant deterioration from a fortnight ago, when the IMF published an analysis of Greece’s debt sustainability ahead of the referendum that said no to the creditors’ proposals.

Here are the key points of the updated debt sustainability analysis, which takes into account the events of recent weeks.

1. Greece’s debt has become “highly unsustainable”

Greek debt is set peak at close to 200% of GDP in the next two years. This contrasts with earlier projections that had debt peaking at 177% of GDP in 2014. By 2022, debt is now projected to be at 170% of GDP, compared to an estimate of 142% of GDP projected in the previous DSA.

The cost of servicing Greece’s debt is set to rise above levels deemed safe by the IMF.

2. Greece could require more than the €85bn estimated by the country’s creditors in last weekend’s agreement

Greece’s creditors – the European commission, the European Central Bank and the IMF – put the country’s total financing needs through end-2018 at €85bn, which is €25bn more than what was projected by the IMF only two weeks ago.

What’s clear in the IMF analysis is that the projections for both debt and financing needs are at “considerable” risk of being missed due to the optimistic assumptions that underpin the figures:

Related: Why the IMF should not aid a Greek bailout

What this all means, very simply put, is that the figures that premise the agreement reached over the weekend between Greece and its European partners are quite possibly unrealistic.

3. The IMF won’t take a new programme to its board unless there is a solution to the debt problem

Confirming the IMF’s position on this from two weeks ago, a senior official said on Tuesday that “a concrete and ambitious solution to Greek debt problem” is a prerequisite to the IMF taking a new programme to its board.

Such a solution would also be needed in order for the IMF conclude a review under current program – financing assurances must be in place for reviews as well as new programmes.

4. The IMF suggests three possible options for debt relief

The IMF analysis states that “the dramatic deterioration in [Greece’s] debt sustainability points to the need for debt relief on a scale that would need to go well beyond what has been under consideration to date — and what has been proposed by the ESM [the European stability mechanism ie by eurozone member states]”.

Related: Alexis Tsipras: bailout a ‘bad deal’ but the best Greece could get

It proposes three options to deal with debt relief:

The IMF says the choice between the various options is for Greece and its European partners to decide.

5. The IMF also points the finger at Syriza and the previous Greek government

According to the IMF, if the original programme had been implemented as agreed, and targets set in 2012 (debt of 124% of GDP by 2020 and “substantially below” 110% of GDP by 2022) met, then no further debt relief would have been needed.

Moreover, “significant shortfalls in programme implementation during the last year have led to a significant increase in the financing need”.

However, what is clear from the IMF analysis is that without some form of debt relief, the reforms agreed this week, and even decades more of austerity, could prove meaningless, and costly for both creditors and the Greek economy.