Debt Sustainability Analysis


Debt sustainability analysis
This assessment has been prepared by the European institutions.
The economic and financial situation in Greece has strongly deteriorated following policy
uncertainty, shortfall in government revenues, the authorities' decisions that made the bank holidays
and the imposition of capital controls necessary, and the missed payments to the IMF and Bank of
Hence, the sustainability of Greece's public debt has significantly deteriorated compared to the DSA
published in the April 2014 Compliance Report prepared by the Commission in liaison with the ECB.
At the time, the debt-to-GDP ratio was projected to reach 125% in 2020 and 112% in 2022. During
the second part of 2014 Greece's debt sustainability improved further due to lower interest rates and
the replacement of part of external funding sources by internal sources through repo operations with
general government entities. These factors together with full programme implementation by the
Greek authorities would have reduced the debt-to-GDP ratio well below the 2012 targets of 124% in
2020 and significantly below 110% in 2022. Under these circumstances, debt was deemed
Since end of last year, a very significant weakening of commitment to reforms and backtracking on
previous reforms and an overall climate of uncertainty have led to a significant deterioration of
economic growth and fiscal prospects and hence of debt sustainability. The parameters that led to
the deterioration in debt sustainability are the following:
A significant downward revision of growth estimates. Real GDP growth projections are
currently at -2.3 in 2015, -1.3 in 2016, 2.7 in 2017 and 3.1 in 2018. Long-term growth is
assumed at 1¾% in the baseline scenario.
The expected primary surplus outcomes have been revised downwards. The fiscal
programme, which had been on track until the third quarter of 2014, was de-railed in the last
quarter of 2014. The weaker implementation of reforms in the second half of 2014,
expectation of debt generous settlement schemes, and the turn of the economic cycle led to
a primary balance rather than a primary surplus. Moreover, the political uncertainties and
the severe policy slippages of the first half of 2015 have led to a strong deterioration of
economic growth and hence to weaker primary balance outcomes in that period.
Furthermore, the imposition of capital controls and the severe liquidity shortage in the Greek
economy now require a further downward revision of the fiscal targets at least for 2015-
2017. Based on these developments, the primary fiscal targets agreed with the authorities
are -0.25% in 2015, 0.5% in 2016, 1.75% in 2017 and 3.5% from 2018 onwards.
Privatisation receipts are likely to be lower than envisaged when the last review was
completed. The strong deterioration in the banking sector outlook, heightened economic and
political uncertainty, more challenging financing conditions for potential investors together
with reduced prospects for the privatisation programme result in lower expected
privatisation proceeds, though the government committed to proceed with privatisation
projects. We could expect until 2022 EUR 13.9 bn in non-bank privatisation receipts would
materialise in the baseline scenario.


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