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The International Monetary Fund has defended its forecasts on Greece’s “explosive” debt dynamics and demands for lower budgetary targets, amid mounting criticism from the EU and Athens over its grim assessment of the Greek economy.
Following dismissive comments from the head of the eurozone’s bailout fund in the Financial Times today, Gerry Rice – spokesman for the IMF – said the Fund “stands by” its predictions that Greece’s debt pile could climb to 275 per cent of GDP by 2060.
“We stand by that [debt sustainability] analysis. Most executive directors are on the record as supporting that too”, said Mr Rice.
Writing in the FT today, Klaus Regling, head of the European Stability Mechanism, piled on the criticism of the Fund’s forecasts saying they did not take into account the “fundamental factors that set a member of the eurozone apart from other countries in the world”.
The IMF has come under fire from the Syriza government and senior EU officials after it warned Greece needs major debt relief and less ambitious budgetary targets over the next decade as its conditions for pumping fresh money into the country.
Greek bonds as have come under strong selling pressure again today with its short-term debt – a measure of default risk – gaining 64 basis points to climb above 10 per cent for the first time in eight months.
Greece will need to make a €1.4bn bond repayment to the European Central Bank in April and faces a bigger €7bn repayments crunch in July – an obligation it is not expected to make without a fresh injection of bailout funds.
Mr Rice said it was the “strongly desired preference” of most of its executive board members that Greece is asked to meet a primary surplus target (excluding debt repayments) of 1.5 per cent rather than the current 3.5 per cent as set out by the EU.
This did not however imply the IMF wanted “more austerity” for Greece, said Mr Rice. Instead, the Fund recommends the left-wing Greek government pass reforms laying out its promise to overhaul its tax and pension system, implementing them once the economic recovery has taken hold.
A 3.5 per cent surplus target is viable only over a “limited” number years – not a decade said Mr Rice and “only if it is underpinned by high quality structural reforms and by growth friendly measures” he said.
The IMF’s board is due to inform European finance ministers on whether it will pump in any fresh rescue cash to Greece at a meeting in Brussels on February 20.
Mr Rice also hinted at fears that Greece could suffer a fresh electoral setback, plunging the country back into crisis and reviving “Grexit” fears.
“We have seen twice in the past years in 2012 and 2015, where Greece has faced a crisis precisely because targets had not been met and Europe withheld support. That led to, on those two occasions, the talk of Grexit,” said Mr Rice.
Responding to Mr Regling’s claims that the EU provides exceptionally low debt servicing costs to Greece, Mr Rice added:
That support is not unconditional. It depends on commitments to reforms, depends on implementation, depends on targets being met. Therefore it is important that targets be realistic.