ESM approves Greece’s early repayment of IMF loans, waives ESM/EFSF repayment obligation

The European Stability Mechanism (ESM) on Monday approved an early partial repayment of Greece’s outstanding loans to the International Monetary Fund (IMF), while waiving Greece’s obligation to simultaneously repay the same proportion of outstanding loans from the ESM and European Financial Stability Facility (EFSF).

Greece had proposed the early repayment of the more expensive portion of its IMF loans, amounting to 2.7 billion euros, but the equivalent proportion of its ESM/EFSF loans that, without the waiver, would then immediately become due amounted to 52.2 billion euros.

The ESM released the following announcement on its decision on Monday:

“The Boards of Directors of the European Stability Mechanism (ESM) and European Financial Stability Facility (EFSF) agreed today to waive the mandatory repayment obligation of ESM/EFSF loans in connection with a partial early repayment by Greece to the International Monetary Fund (IMF).

Under the ESM and EFSF loan agreements with Greece, upon early repayment to the IMF, a proportional amount of the financial assistance provided under ESM and EFSF facilities becomes immediately due and payable. The waiver granted by the ESM and EFSF means that Greece will not be required to make an early repayment to either institution.

“Greece’s early partial repayment to the IMF will be beneficial for both Greece and the ESM. It will generate savings as Greece can now finance itself on the market at a lower cost compared to the cost of servicing the tranche to be repaid to the IMF. This will improve Greece’s debt sustainability and should be positively perceived by financial markets. These benefits, which can materialise only if the ESM and EFSF waive their early repayment rights, will improve the EFSF’s and ESM’s position as Greece’s main creditors,” said ESM Managing Director and EFSF CEO Klaus Regling.

On 16 September 2019, the Greek government sent formal requests to the ESM and EFSF proposing an early repayment on part of its outstanding loans to the IMF, amounting to approximately 2.7 billion. The EFSF and ESM lending documentation contain proportional repayment provisions when parallel official sector financing is repaid ahead of schedule. Without the waiver approved today, Greece would have been obliged to make a cumulative repayment of 52.2 billion euros to the ESM and EFSF in parallel to its IMF repayment.”