IMF board says Greece needs further debt relief

WASHINGTON - Agence France-Presse

AFP photo

The International Monetary Fund’s board agreed late on Feb. 6 that Greece likely will need further debt relief, but there remains a split over the appropriate goal for the country’s finances.

The board met to discuss the long-overdue review of the Greek economy, as well as a report that describes the country’s debt as becoming “explosive” in the long run.     

The IMF said most of its board members agreed that “despite Greece’s enormous sacrifices and European partners’ generous support, further relief may well be required to restore debt sustainability.”  
   
That debt relief must be accompanied, however, by “strong policy implementation to restore growth and sustainability,” it said.

There has long been a split between the IMF and Europe due to the demand by the eurozone that Greece deliver a primary balance, or budget surplus before debt repayments, of 3.5 percent of GDP, far in excess of the 1.5 percent the IMF says is feasible.

This dispute, which is holding up further IMF financing, was evident in the board discussion on Feb. 6.

“Most Directors agreed that Greece does not require further fiscal consolidation at this time,” since the country already is expected to hit the 1.5 percent target. However, “some Directors favored a surplus of 3-1/2 percent of GDP by 2018,” the statement said.

The IMF does not identify the board members in its statement, but also noted that the directors “stressed the need” to have “realistic assumptions about Greece’s ability to generate sustained surpluses and long term growth,” an issue at the heart of the fund’s dispute with the eurozone.

Months of bickering have delayed progress on Greece’s 86-billion-euro ($92.4 billion) bailout program agreed in 2015.

While the IMF board did not discuss the loan program, the board members representing the 189 IMF member countries agreed in urging Greece to speed up implementation of reforms -- especially improving tax collection -- to get the economy back on sound footing.

The IMF board also reviewed the Debt Sustainability Analysis -- which was not released publicly but was obtained by AFP -- and warns that “Greece’s debt is highly unsustainable” and “will become explosive in the long run,” as the government will have to replace highly subsidized official financing with market financing at much higher rates.

In that report the fund called on Europe to provide a credible debt relief program for Greece.