Washington: The International Monetary Fund (IMF) yesterday warned that Greece would need an extension of its European Union loans and potentially a large debt writeoff if it grows more slowly than expected and economic reforms are not implemented.
The IMF warning in a preliminary draft of its latest debt sustainability report came as Greece readies for a Sunday referendum on an international bailout deal that Prime Minister Alexis Tsipiras has urged voters to reject.
The Washington-based institution, which is part of a “troika” that includes the European Commission and European Central Bank that is overseeing the bailout, said that even if Greek policies came back on track, loans made by Europe “will need to be extended significantly” and that the country would need further concessional financing.
The report was made based on assessments last week, before Greek banks have been closed and the country had defaulted on an IMF repayment.
“We cannot go to our board to complete this review unless we have a comprehensive programme,” said a senior IMF official in a conference call, adding that debt relief from creditors would be essential.
The IMF said Greece would need an additional 36 billion euros ($39.89bn) in European funding from total additional financing needs of 50bn euros due to policy slippages and the latest proposals from Athens.
Even under the most optimistic current IMF projection and with concessional financing through 2018, it said Greece’s debt to gross domestic product ratio was seen at 150 per cent in 2020 and 140pc in 2022.
The IMF believes that given the fragile debt dynamics of Greece, one option would be to extend the grace period to 20 years and the amortisation period to 40 years on existing EU loans and to provide new official sector loans to cover financing needs falling due on similar terms at least through 2018.
Under an IMF projection where real economic growth was lower, at just 1pc, Greece’s debt would remain above 100pc of GDP for the next three decades, it said, even with a lengthening of maturities and new loans on concessional terms.