IMF Report Damps Optimism Over Greece’s Growth Prospects



The International Monetary Fund (IMF) has dampened optimism over the medium- to long-term prospects for the Greek economy as the country prepares to complete its third bailout in three weeks time.

According to the Fund’s debt sustainability analysis which was published on Tuesday, Greece may have a problem achieving what’s its European lenders assume: Namely, annual nominal GDP growth of 3.1 percent on average between now and 2060 or a primary surplus — the budget balance before debt servicing — of 2.4 percent of GDP in the same period.

The IMF said its own assumptions of growth of 2.9 percent and a primary surplus of 1.8 percent on average in that period made more sense.

The IMF sees Greece’s growth rate dropping sharply after a short-lived rebound. Source: Bloomberg

While commending the Greek government for eliminating the fiscal and current account imbalances and restoring growth, the Washington-based lender said “risks are tilted to the downside.”

The IMF report says that euro zone debt relief for Greece has made its huge public debt sustainable over the medium term, but optimistic assumptions on Greek growth and primary surplus well into the future are making debt sustainability uncertain in the long-term.

“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 report says.

The Fund analysis showed that with the debt relief package provided by the euro zone in June, Greece’s debt-to-GDP ratio would initially fall but then start an uninterrupted rise from around 2038.

Also the country’s gross financing needs would breach the 20 percent of GDP threshold set by the euro zone itself by 2038 and continue rising thereafter.

“Therefore, additional relief would be needed to secure debt sustainability,” the IMF said, noting that if the more optimistic euro zone assumptions on growth and primary surplus were correct, no additional debt relief would be needed.