Real economy to get 700 mln per month ‘cash injection’ from loan tranches, according to Finance ministry officials

Finance ministry officials on Wednesday said that 700 million euros per month until next October will go toward repaying the state’s overdue debts to the private sector, using funds from a 10.3-billion-euro loan tranche that the Eurogroup agreed to disburse earlier the same day.

Disbursement of the 10.3 billion euros tranche to Greece will be made in two instalments, one of 7.5 billion euros and another 2.8 billion euros. The first sub-tranche will be disbursed in June to cover the country’s debt obligations to European Central Bank (in July) and to the International Monetary Fund and to begin repayment of the state’s overdue debt to the private sector.

The disbursement of the first instalment, subject to approval by national parliaments, will take place after a review of the Greek programme is fully completed, including a final inspection of a recent law voted in the Parliament and confirmation of full implementation of prior actions. This will include corrections to legislation opening the market of loan sales (including loans with state guarantee), pension reforms (retrospective return of EKAS a supplementary pension benefit) and completion of prior actions in privatisations (ratification of a contract for Helliniko, Egnatia Road).

A second sub-tranche of 2.8 billion euros will then be available from September, pumping a total of 3.5 billion euros into the real economy to repay state overdue debt to the private sector.

Instalments on a further debt servicing will be linked to privatization landmarks, including a new Privatization Fund, corporate governance in Greek banks (possible change in management), a new fully independent Revenue Authority and interventions in the energy market. The institutions and ratification by the Euro Working Group and the ESM will make an assessment of prior actions.

The Eurogroup meeting also toned down the wording on primary surplus targets by noting that fiscal commitments are to be reviewed in 2018.

Finance ministry officials said that an agreement on debt sustainability was adjusted to the characteristics of the Greek economy and ensured its financing on very favourable terms for a long period of time.

According to the same sources, it was agreed that Greece would not pay more than 15 pct of GDP on debt servicing in the medium-term, raising this ceiling to 20 pct of GDP. This ceiling will include payment of Treasury bills and is low compared with all comparative indexes for countries with similar economic characteristics. It also fundamentally reduces the country’s financing needs for the coming years, directly resolving the debt issue. These measures (short-, medium- and long-term) for a debt restructuring offered a clear road map stabilising liquidity conditions in the economy, while a sum of 20 billion euros saved from a bank recapitalisation scheme was “available” for debt repurchase actions, they said.

European partners have essentially committed to begin moves for a debt restructuring and to plan a “large package” for implementation after 2018, on the condition that the programme is implemented, while the IMF agreed to recommend its participation in the Greek programme this year after the European partners completed a new debt sustainability report.

Poul Thomsen, head of European affairs in the IMF, said that such measures will be implemented after the programme was completed fully in July 2018 and will include measures of a more efficient management of debt (Eurozone proposal) combined with a provision to create a action mechanism operating on a long-term horizon. For 2017, the Eurogroup meeting approved interventions leading to a reduction of interest payment of around 220 million euros.