Econostrum | Economic News in the Mediterranean

Greece pays all its debt to the IMF in advance

Written by Frédéric Dubessy on Tuesday, May 3rd 2022 à 17:35 | Read 635 times

Greece is repaying its last tranche of €1.85bn to the International Monetary Fund and is getting some breathing space, even if its economic problems are far from over.

The Greek economy is getting a glimmer of hope (photo: F.Dubessy)
The Greek economy is getting a glimmer of hope (photo: F.Dubessy)
GREECE. As its Prime Minister, Kyriakos Mitsotakis, announced at the end of March 2022, Greece has just repaid the last tranche of its debt to the International Monetary Fund (IMF). The €1.85bn was paid out two years ahead of schedule. "This allows us to save some €230m in interest," said Christos Staikouras, Greek Finance Minister. "Greece is closing a dark chapter that began in 2010. A period that we must not and will not go through again," said Kyriakos Mitsotakis, who took office in July 2019.

From 2009 to 2018, the country went through a huge financial crisis that destabilised the country and forced it to take very strong austerity measures to be able to borrow and avoid bankruptcy and an exit from the euro zone. In all, it had received nearly €300bn from the IMF (€32.1bn between 2010 and 2014) and the European Union (€256.6bn in three infusions).

At the June 2018 Eurogroup and after the reading of the fourth and final assessment of the third financial assistance programme granted by the European Stability Mechanism (ESM), the European Finance Ministers had agreed on the modalities for Greece's exit from the aid programmes. The European Commissioner for Economic and Financial Affairs, Taxation and Customs, Pierre Moscovici, had even declared: "The Greek crisis ends here, tonight. We have finally come to the end of what has been a long and difficult road. This is a historic moment."

3.5% growth expected in 2022

Although it has managed to reduce its debt from 206.3% of GDP in 2020 to 197.1% in 2021 (189.6% expected in 2022), Greece is still the most indebted country in the euro zone.

On 20 April 2022, the Prime Minister announced a 9.7% increase in the minimum wage to €713 gross per month from 1 May 2022. This measure will benefit around 650,000 employees. The same percentage increase has also been applied to the monthly unemployment benefit, which will rise to €437.50. These are appreciable boosts, but they are not enough, given that inflation reached 9.4% in April (compared with an average of 7.5% for EU countries), according to figures published by Eurostat, the European Commission's Directorate-General for Statistical Information.

In April 2022, IMF experts estimated that Greece would achieve 3.5% GDP growth in 2022 and that inflation would be at 4.5%. On 31 March of the same year, the conclusions of an on-site consultation mission of the Bretton Woods institution (17 to 31 March 2022) acknowledged that "the Greek economy has recovered strongly from the severe recession induced by Covid-19 in 2020. Output has recovered to pre-pandemic levels in 2021, thanks to a faster-than-expected recovery in tourism, an increase in private consumption as households began to liquidate pandemic-related savings, and robust private investment supported by a surge in foreign direct investment. The strong fiscal response, accommodative monetary policy and prudential policies, as well as considerable support from the EU, have been key to driving the recovery.

The note highlighted "the commendable progress made in addressing the aftermath of the crisis, despite the difficult environment (...) Unemployment has steadily declined. Reforms have advanced in several areas, including digitalisation, privatisation and an improved fiscal policy mix".

A primary surplus in 2023

However, the impact of the war in Ukraine and high inflation are of concern to the IMF, which fears "energy shortages and the addition of stronger-than-expected pressures on domestic inflation, tourism, and risk aversion that could prompt a more rapid tightening of global financial conditions. The mission's note was both hot and cold.

On the one hand, its report stated that "public debt should decline and rollover risks appear manageable in the medium term. The debt-to-GDP ratio is expected to fall below pre-pandemic levels by 2023, driven by robust growth, fiscal adjustment and higher inflation, in a context where the share of fixed-rate and long-term debt is very high".

On the other hand, that "although the overall risk of sovereign stress is moderate, considerable uncertainty remains about Greece's ability to maintain high primary surpluses and about the future path of interest rates as the country begins to replace official with market-based financing. Despite the government's large liquidity buffer and active liability management, Greece's ability to service its debt in the event of a severe shock depends on continued regional support.

The IMF experts recommended "maintaining an accommodative fiscal stance in 2022, achieving a primary surplus in 2023 and targeting a primary deficit below 2% of GDP" in 2022. 

1.5bn in bonds issued
In June 2021, the European Union approved a €17.8bn recovery plan for Greece in the form of grants and €12.7bn in loans under the Recovery and Resilience Facility (RRF).

In addition to this windfall, which will make up for some of the consequences of the pandemic on its economy, several good news items have followed in recent days. On Wednesday 27 April 2022, Athens raised €1.5 billion in seven-year bonds at a rate of 2.4%. "Our country has succeeded in resolutely entering the category of euro zone issuers, thus ensuring a lasting presence on the world markets, (...) despite the unstable international environment," commented Christos Staikouras. This is the second time Greece has issued government bonds, the first being in April 2020 when the Covid-19 outbreak occurred. The Greek debt agency plans to issue €12bn of bonds compared to €14bn in 2021.

S&P decided at the end of April 2022 to raise Greece's long-term sovereign debt by one notch (from BB to BB+) with a stable outlook.

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