Greek debt assumptions are unrealistic in longer term
IMF critique of Greece's long-term debt prospects is sensible but misses the point -- the main thing is the short run
As Greece replaces official sector debt with market debt, it will find servicing its "extraordinarily high" public debt more challenging, Peter Dohlman, the IMF Greek mission chief, said yesterday. He was speaking after the release of the Fund's Article IV consultation, including its debt sustainability analysis (DSA), which says the debt relief agreed with Greece's European partners makes "very ambitious assumptions" about its long-term growth and primary budget surpluses. The DSA annexe noted that a debt agreement with a horizon extending beyond mid-century assumed EU member states' political commitment to Greece for a long time to come. Dohlman expected IMF support for Greece to continue taking the form of technical assistance. During the IMF Executive Board meeting on July 27, "many" directors called for "realistic" primary balance and growth targets, warning that Greece needed further structural reforms to bring itself up to regional levels of productivity and competitiveness.
Our judgement
A recovery is under way, with year-on-year growth returning in 2017 and continuing into the first quarter of 2018. The economy remains fragile and much depends on the government's adherence to the reform agenda. Forty-year forecasts are in any case idle; what matters is getting through the next year.
See GREECE: Parts of economy will remain unreformed - July 30, 2018