Greek public debt seen dropping to 61% of GDP by 2060, Bank of Greece says
This is based on the assumption of a return to a primary surplus in 2023 that will increase to 2% of GDP in 2025 and permanently remain at this level.
This scenario is largely the result of favorable repayment terms for the country's debt to the institutional sector, due to successive measures to ease Greece's debt in 2012, 2017 and 2018, and not something that can be relied upon in perpetuity, the bank noted. According to the report, this means that economic policy must aim at a rapid reduction of public debt.
In the long term, increased uncertainty and a refinancing of accumulated debt on market terms will increase the Greek State's exposure to interest rate risk, eliminating margins for relaxing fiscal policy and forcing the country to sustain primary surpluses, the report said.
Under the bank's main scenario, the debt to GDP ratio is expected to gradually decrease while remaining above 100 pct in the medium term, before falling to 61% of GDP in 2060. The public sector's financing needs are forecast to remain close to but within the limit of 15 pct of GDP.
The DSA includes another 7 alternative scenarios with more or less favorable outcomes, such as scenarios where growth rates are lower, where the primary surplus is smaller, where an increase in international uncertainty is persistent, where inflationary pressures in the Eurozone have greater intensity and duration or where the Eurosystem portfolio is more rapidly downsized, as well as a scenario where Greece's credit rating improves more rapidly than expected. The bank also includes a final scenario that combines the unfavorable assumptions of scenarios 2,3,4 and 5, where external negative outcomes are combined with a failure to take corrective action, which is the only scenario in which public debt becomes unsustainable.
The report's conclusion is that the current favourable characteristics of accumulated debt cannot be relied upon in perpetuity but provide a sufficient window of opportunity to ensure public debt remains sustainable during the gradual refinancing of favorable loans on market terms.