The Public Debt Management Agency (PDMA) is awaiting the nod from the European Stability Mechanism (ESM) this or next month to proceed with the early repayment of another part of Greece’s debt to the International Monetary Fund, thereby considerably reducing the remainder of the country’s dues to the IMF.
The government’s intention, according to a statement by Finance Minister Christos Staikouras in late December, had been for the country to pay off 3.6 billion euros that corresponded to the tranches due in 2021 and 2022. However, since then the state has covered other obligations due in January, so the government only had €3.2 billion available for the 2021-22 repayment period at end-January, and by end-March this will have diminished to €3.1 billion. It is to that amount that the early repayment to the IMF is expected to come, once the expected approval comes from the ESM.
The amount to be repaid has been studied carefully so as to maintain a loan balance of about €1.7 billion, which the IMF considers the threshold for continuing to exercise its post-bailout surveillance role. That remainder will be paid off in 2023 and 2024, when the chapter of the IMF bailout period concludes for good. The Fund is already little more than an observer of the country’s fiscal policy.
That move by the PDMA, during a period of very low interest rates, will definitely benefit state coffers, as Greece will repay expensive loans from the IMF with cheap borrowing from the markets.
The matter returned to the forefront after Greece borrowed €3.5 billion last week via a new 10-year bond issue with an interest rate of just 0.8%, while the IMF loans’ interest rates are two percentage points higher.
This way the profile of Greece’s sovereign debt is improved, while producing a signal to money markets that the country is steadily heading toward paying off its obligations, having moved away from the difficulties of the past.
It is for these reasons that the ESM is also expected to issue its approval, which is necessary as the Mechanism enjoys the status of preferred creditor, just like the IMF. This means that if Greece repays the IMF early, it must also pay off a similar amount of its loans from the ESM, unless the latter relieves it of this obligation for now. That was also the case in 2019, when €2.7 billion was repaid to the IMF with the ESM’s approval.