REPORT TO CONGRESS ON

THE INTERNATIONAL MONETARY FUND’S

LOAN TO GREECE

United States Department of the Treasury

August 18, 2017
Introduction

This report provides an assessment of the likelihood that a precautionary International Monetary 

Fund (IMF) loan to Greece, approved in principle in July 2017, will be repaid in full. For the 

program to become effective – and thus for any potential disbursement of IMF financing to occur 

– the IMF Executive Board must take a second decision confirming that Greece remains on track 

with policy reforms under the program, and that there are credible and specific commitments 

from Greece’s European partners to provide requisite debt relief so that public debt becomes

sustainable under the IMF’s analysis. 

Consistent with the longstanding practice of the Office of the United States Executive Director 

(OUSED) at the IMF with respect to all loans, the OUSED and the Treasury Department

conducted a careful and thorough evaluation of the proposal for the Greece program submitted to 

the IMF Executive Board. The OUSED and Treasury staff continue to monitor developments 

and remain engaged with the Greek authorities, European institutions, and the IMF on Greece’s 

path towards economic recovery and sustainability. 

Overview

On July 20, 2017, the IMF Executive Board approved in principle (AIP) a precautionary StandBy Arrangement (SBA) which, if approved in full, could provide up to SDR 1.3 billion (around

U.S. $1.8 billion) for Greece. The IMF program is intended to complement Greece’s European 

Stability Mechanism (ESM) program of $86 billion. At 55 percent of quota, the IMF program is 

limited in size, well below the normal access limits of 145 percent of quota annually and 435

percent of quota cumulatively. Furthermore, the Greek authorities have stated that they intend to 

treat the IMF program as precautionary, meaning that they do not intend to draw on the funding,

but would have the option to do so (if the program is approved in full) should external shocks 

generate a balance of payments need. Regardless of whether the program is fully approved, IMF 

staff will assess Greece’s progress on quarterly program targets and benchmarks with semiannual 

IMF Executive Board reviews. The program is set to expire on August 31, 2018. 

The IMF’s AIP of the program facilitated the ESM’s approval of a disbursement of €7.7 billion 

in European program funds on July 7 (with an additional €0.8 billion held back until the fall 

pending continued reform implementation by Greece), enabling Greece to make large external 

payments due in July. 

Requisite European debt relief will need to be in line with debt sustainability under the IMF 

program’s assumptions of 1 percent real GDP growth over the medium term and a 1.5 percent of 

GDP primary fiscal surplus over the longer term after a near-term interval (5 years) at 3.5 

percent. Treasury views these assumptions as appropriately conservative. IMF Management 

will bring the program back to the IMF Executive Board for full approval once the IMF receives

specific and credible assurances from Greece’s European partners to restore debt sustainability 

and assuming Greece remains on track with policy reforms under the program.

The program focuses on three key areas of reforms to help restore macroeconomic stability and 

improve Greece’s long-term growth prospects: 1) a more growth-friendly fiscal policy mix; 2) a 
strengthening of the financial sector with a focus on reducing non-performing loans; and 3)

targeted growth-oriented structural reforms to liberalize product and services markets, as well as 

commitments to not roll back past labor market reforms. 

Debt Status

Greece’s gross public debt rose to 181 percent of GDP in 2016, up from 176 percent in 2015. 

The IMF projects that Greece’s debt will decline gradually to 150 percent of GDP by 2030, 

before rising again to 195 percent of GDP by 2060 as Greece replaces highly-concessional 

official sector financing with more expensive market financing. European institutions have 

already implemented a package of short-term debt relief measures to lower interest rates and 

extend maturities and agreed to several medium-term debt relief measures conditional on

completion of the ESM program. However, the IMF’s analysis shows that these measures alone 

are insufficient to fully restore Greece’s debt sustainability. Additional European debt relief 

measures are needed to maintain Greece’s gross financing needs below the thresholds of 15 

percent of GDP in the near term and 20 percent of GDP over the longer run to restore 

sustainability. 

Debt Management Strategy

A key objective of the Greek government is to bring its debt back to sustainable levels. In order 

to meet this objective, Greece is committed to implement policies that will restore 

macroeconomic stability in the medium run. Under the IMF program, Greece has committed to 

a number of growth-friendly fiscal and structural reforms that will boost Greece’s primary 

surplus – a key factor for achieving debt sustainability – and create breathing room to implement 

long-term structural reforms to restore Greece’s competitiveness. In particular, Greece has 

committed to reduce pensions, broaden the tax base, improve the efficiency of Greece’s new 

revenue agency, and liberalize product markets. The authorities also aim to restore market 

access and remove capital controls before the end of the IMF program. In addition to the 

reforms, the Greek authorities, the IMF, and Greece’s European creditors have acknowledged the 

need for additional debt relief from European official creditors. The IMF program will provide a 

framework and impetus for debt relief discussions between Greece and these official creditors. 

Vulnerabilities

Greece has made significant progress in addressing its macroeconomic imbalances. However, a 

number of economic challenges remain that hinder the country’s ability to strengthen economic 

growth and improve public finances. 

The Greek authorities will need to undertake significant reforms to restore debt sustainability. 

The key variables that will influence Greece’s public debt trajectory are the rate of GDP growth, 

the fiscal balance, and the cost of its financing. Greece’s current structure of public finances is 

unsustainable and growth-unfriendly – partly due to unaffordable pension spending financed by 

high tax rates on narrow bases. The authorities will need to rebalance the budget to be more 

growth-friendly and socially-inclusive, including reducing generous pensions and tax exemptions 

for the middle class. The budget will need to be complemented by decisive fiscal structural 
reforms to combat tax evasion and strengthen public administration. Greece’s banks continue to 

hold a substantial amount of non-performing loans (NPL) and stronger efforts are needed to 

strengthen supervisory actions to incentivize NPL reductions. The country’s long-term growth 

trajectory will also depend on the ability of authorities to preserve previous labor market 

reforms, in addition to implementing new measures to open and liberalize the economy. 

Previous reforms have caused social and political tensions which have slowed reform 

momentum, and additional reforms to address Greece’s vulnerabilities could face significant 

social and political hurdles to implementation. To mitigate this risk the IMF required several 

prior actions for the program, including the adoption of legislation on tax collection and audits 

and measures to strengthen the legal framework for reducing non-performing loans. The IMF 

and other institutions will also provide technical assistance in support of key reforms.

A key outstanding risk remains the need for significant additional debt relief based on the IMF’s 

assumptions from Greece’s European creditors so as to restore debt sustainability. 

Overall assessment

Greece remains heavily indebted and vulnerable. However, its economic reform program, 

supported by the Europeans and the IMF, provides the best opportunity for the country to return 

to a sustainable debt trajectory and address significant vulnerabilities to improve growth 

prospects. 

Risks to the IMF are mitigated by the limited program size, the precautionary nature of the 

program, and by linking full approval and any possible disbursements to sufficient commitments

on debt relief from European partners. As of end-June 2017, Greece’s total exposure to the IMF 

has declined to SDR 10 billion (around $14 billion) or roughly 414 percent of Greece’s quota

and 6.8 percent of GDP, down from a peak of SDR 24 billion (or around $34 billion) in July 

2013. Even in the unexpected case of Greece drawing fully on this arrangement, Greece’s total 

credit outstanding to the IMF would decline to around SDR 9 billion ($13 billion) by 2018. The 

IMF program also contains strong policy measures, and the IMF will rigorously review program 

performance even in the absence of full program approval. The IMF’s de facto preferred creditor 

status will also promote repayment of the IMF ahead of all other creditors. While Greece was 

delayed in making about $2.2 billion in payments to the IMF in June 2015, Greece cleared these 

arrears within three weeks while under severe financial stress and has since continued to make its 

IMF payments in full and on time. 

Based on these factors, the Treasury Department assesses that the IMF’s loan to Greece, if 

approved, is likely to be repaid in full.