Greek debt load may be unsustainable, IMF says

The policies carried out by Greek authorities since late 2014 have turned Greece´s debt load unsustainable and should the reforms asked of Athens be softened further then the country will require some of its debt to be forgiven, the world´s financial watchdog said.

“Towards the end of the summer of last year, it appeared that no further debt relief would be needed under the November 2012 policy framework, but significant changes in policies since then are leading to substantial new financing needs,” the International Monetary Fund said in a preliminary draft of its annual Financial Stability review.

Among those policy changes were the lower primary surpluses pursued and the “weak reform effort” by Athens, which would weigh on growth.

“Coming on top of the very high existing debt, these new financing needs render the debt dynamics unsustainable,” the Washington-based lender added.

At its last review, in May 2014, the IMF had said the Mediterranean country´s public finances and debt were on a sustainable albeit “highly vulnerable” path.

"Had reforms been implemented in full no further debt relief would be needed"

Debt as a percentage of gross domestic product was projected to fall to 117% of GDP by 2022. That was assuming the full and timely implementation of structural reforms and primary budget surpluses above 4% of GDP on a medium-term basis.

However, at present Europe will need to at least significantly extend the maturity of its loans to the Mediterranean country and additional financing on similar terms will have to be provided.

Furthermore, if the reforms asked of Greece are weakened further - particularly through a further lowering of primary surplus targets and even weaker structural reforms — then 'haircuts' of over 30% of GDP on debt will become necessary to meet the 120% debt-to-GDP target set out in 2012.

If not, then debt would remain "very high for decades and highly vulnerable to shocks".

Nonetheless, the IMF clearly states that: "had the program [of reforms] been implemented in full then no further debt relief would have been needed."