The Greek Statistical Agency released a recalculation of the Greek GDP today. Real growth for 2011 was revaluated to 7.1% instead of 6.9%. The important change though was the fact that the actual current price GDP was lowered to €208.5bn instead of €215.1bn (as was the 2010 GDP to €222.15bn instead of €227.3bn).
Based on the 2011 data the GDP deflator was around 0.93%. Assuming a constant -0.1% deflator for 2012 and 2013 (per the latest budget draft) and a real growth rate of -6.5% and -4%, the relevant GDP figures will be around €194.7bn and €185.8bn (the ministry of finance was expecting a GDP of €193.1bn in 2013). According to the latest budget draft, government debt is expected to climb to €340.6bn in 2011 and €346.2bn, making the relevant debt-to-GDP figure 175% for 2012 and 186% for 2013. The ministry of finance was expecting 169.5% for 2011 and 179.3% for 2013.
I ‘ll be using the growth figures from the latest Debt sustainability baseline from the IMF Staff Report, mainly a nominal growth rate of 2.5% in 2014 and 4% for 2015-2020. I ‘ll also expect total privatization receipts in the relevant period to be €30bn.
The total nominal growth will be 30%, making the 2020 GDP €241.5bn. Assuming that the government debt grows to only €350bn (meaning that the budget is roughly balanced after 2013) and accounting for privatization receipts, the 2020 number will be €320bn, or 132% of GDP. If we allow for zero nominal growth during 2014, the 2020 figure drops to €235bn and the debt ratio climbs to 136%. It is obvious that even with the most optimistic projections, the actual debt ratio in 2020 will be 12-20% over the 120% target.
I really don’t see a way how the IMF debt sustainability report will be positive. It’s also very clear that the Greek problem is one of growth, not deficit reduction. Unless there’s a huge political compromise I believe that OSI will happen very soon, probably with the IMF pulling out of Greek funding completely in order to preserve its preferred creditor status. It also probably marks the end of IMF financing of Europe, with the ECB and the ESM becoming the main creditors from now on. In the short-term it’s credit negative for Greek debt although one can now bet that the OSI will actually happen which will support Greek bond prices.
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6 Οκτωβρίου, 2012 στις 19:19
Mich
Thanks for the great post.
Well, the IMF will get repaid (as always) and the ECB for the time being does not want to discuss any haircut on on its holdings (SMP bonds will remain with senior status). Thus, what has remained is bilateral loans. Any thoughts whether the ECB could participate?
6 Οκτωβρίου, 2012 στις 19:51
kkalev
The ECB’s legal argument is actually very weak. In any case, the major problem is basically the ECB holdings which pay large interest rates and mature during the program period. It’s very important for the ECB to exchange the SMP bonds at purchase price with new English-law bonds like the ones provided in the PSI, something which should lower interest payments and push redemptions further into the future. It should also immediately remit any profits from interest received on the bonds (since it currently basically pays zero for the SMP term deposits).
I think the EU will remove the 150bp premium on its bilateral loans, something which will reduce annual interest payments by 0.4% of GDP.
My feeling is that the PSI is considered a failure and private bondholders will not be hit any more. The final outcome is mainly political so I cannot safely bet on what will happen eventually.