Moody’s says early repayment of IMF loans credit positive for Greece

An early repayment by Greece of loans worth around 2.7 billion euros –from a total debt of 8.4 billion euros to the International Monetary Fund- is credit positive for the country as it will reduce spending on interest and slightly extend the average duration of debt, improving its sustainability, Moody’s said in a report on Thursday.

The credit rating agency said the average interest of IMF loans is 4.9 pct, significantly higher than an 1.4 pct interest paid by Greece on average for its loans to the European Stability Fund and the EFSF. It is also significantly higher compared with an 1.5 pct yield of a 10-year state bond re-issued by Greece in October and the 1.9 pct yield of a seven-year bond issued in July.

With the early partial repayment of IMF loans, Greece will have no financial obligations towards the Fund in 2019 and 2020 and expects to save around 70 million euros, or 1.2 pct of its interest spending. The country will have to repay to the IMF –for capital and interest- around 1.9-2.0 billion euros annually in the period 2021-2023 and around 300 million euros in 2024. “However, the country’s repayment profile in the next years is easily manageable. An early repayment follows other recent positive credit developments, such as a full abolition of capital controls from September 1st in the country and the government’s success in bond issuance in capital markets. Since the end of the adjustment programme in August 2018, the government has raised 9.0 billion euros through bond issuance with interest rates falling lower,” Moody’s said.

It noted that a government-sponsored plan for an Asset Protection Scheme (APS) of the banking system, approved by the European Commission, could prove more significant than an early repayment of IMF loans as it would help banks to reduce their large stock of non-performing exposure (NPEs), totaling around 43.6 pct of their loan portfolio in June 2019.