Assessment of Greece's financing needs

Greece's total gross financing needs for the period August 2015-August 2018, as estimated by the
four institutions, is up to EUR 86 bn. In particular, the following financing needs are estimated over
this period.
a. Medium and long-term debt redemption
Over the three years, Greece has to cover EUR 54.1 bn in debt amortisation and interest payments
(EUR 37.5 bn in amortisation and EUR 16.6 bn in interest payments). Of the total amortisation due
over the August 2015-August 2018 period, EUR 8.4 bn represents IMF debt redemption, EUR 9.2 bn is
amortisation on the Eurosystem ANFA and SMP bonds, EUR 1.4 bn is for the BoG, EUR 15 bn is on
other debt (of which EUR 7 bn for the EFSM bridge loan and EUR 8 bn to the private sector).
In terms of interest payments over this period, EUR 2.9 bn is due on the Eurosystem ANFA and SMP
bonds, EUR 2.7 bn on the new Greek government bonds issued after the PSI exchange and mostly
held by the private sector, EUR 1.8 bn on the EFSF PSI and bond interest facilities (which is not
deferred), EUR 1.8 bn on the IMF loan, EUR 1 bn on the GLF loan and EUR 1 bn on the new ESM loan.
The amortisation payments also include the EUR 3.5 bn to unwind repo operations. The Greek fiscal
framework did not allow inter-governmental borrowing amongst the various general government
entities. As a result more expensive external borrowing was used to cover part of the State financing
needs. Since Spring 2014 the Greek authorities implemented legislation that allowed general
government entities to conduct repo operations with the State thereby covering part of its financing
needs. This was meant as a temporary tool until the authorities implemented an in-depth cash
management reform that would allow using part of the repo operations as a permanent source of
funding.
Since the liquidity shortage the authorities have increasingly relied on repo operations to meet
internal and external financing needs. The total stock of repo operations increased to EUR 9.7 bn by
end-July 2015. Of this total stock we estimate that EUR 6.2 bn can be considered a permanent source
of funding, while the remaining EUR 3.5 bn would have to be unwound and replaced with other
sources of funding.
b. Fiscal needs
The targets agreed with the authorities for the primary fiscal balance in accrual terms as a percent of
GDP are the following: -0.25% in 2015, 0.5% in 2016, 1.75% in 2017 and 3.5% from 2018 onwards.
These targets together with the corresponding cash to accrual adjustment based on the measures
agreed with the authorities lead to an overall reduction in financing needs of EUR 2 bn due to the
contribution of the primary surplus.
The authorities also need to clear arrears given the tight financing conditions. Arrears clearance is
estimated at EUR 7 bn over the programme period.
c. Financial sector
Following the uncertainty over the financing of the State and over the economic and financial policies
by the Greek government in the last months, and the introduction of bank holidays, restrictions on
deposit withdrawals and capital controls, the situation for the banks has dramatically worsened.

Hence, it is expected that banks will need to raise a substantial amount of capital over a relatively
short period of time so as to remain compliant with regulatory requirements and to mitigate the loss
of confidence resulting from the imposition of payment restrictions. Given that it is unlikely that
banks will be able to secure private investment, capital injections will likely need to come from
programme financing.
Current calculations estimate financing needs in the banking sector up to a total of EUR 25 bn.
d. Cash buffer for deposit build-up
The absence of programme disbursements since August 2014 and the complete lack of market access
since October 2014 have caused the authorities to use internal resources to honour internal and
external debt service payments. As a result, the liquidity situation has become very tight and total
State deposits had decreased to well below EUR 1 bn by end-June 2015. The programme should
allow re-building deposits to the EUR 5 bn level at the end of 2015 which had been agreed during the
second adjustment programme. The total State deposit level is then projected to increase to EUR 8
bn by the end of the ESM programme. The increase in the cash buffer to EUR 8 bn would support the
return of the Hellenic Republic to market financing over the programme period. The build-up of
deposits also takes account of the need for Greece to replenish its SDR holdings (estimated at EUR
770 mn) which it had used in May 2015 to service its external debt.
e. Privatisation proceeds
Based on the agreed targets, privatisation receipts from non-bank assets are expected to lower
financing needs by EUR 6.2 bn over the programme period. After the imposition of capital controls it
is prudent to assume that receipts from the privatisation of bank assets materializes only after the
programme period.

Based on all the elements above total gross financing needs for the programme period are
estimated at the current juncture at EUR 86 bn.

Comparison with financing needs in the Eligibility Report

Compared to the Eligibility Report gross financing needs have increased by around EUR 4 bn, bringing
the overall gross financing needs to EUR 86 bn. This is in line with the overall gross financing needs
mentioned in the Euro area summit.

Table 1. Greece comparison of gross financing needs

Amortisation
Repayment of IMF and BoG
Repayment EFSM loan
Interes payments
Total debt service
Arrears clearance
Cash buffer and SDR holdings replenishment
Bank recapitalisation
Privatisation
Primary surplus
Total gross financing needs

Eligibility report
33.8
2.1
17.8
53.7
7.0
4.5
25.0
-2.5
-6.0
81.7

Current assessment Difference

30.5
7.0
1.6
16.6
-1.2
54.1
0.4
7.0
0.0
7.6
3.1
25.0
0.0
-6.2
-3.7
-2.0
4.0
85.5
3.8

The higher gross financing needs are due to a lower primary surplus than originally expected (EUR 4
bn), as well as to an increase in Greece's liquidity buffer at the end of the programme period in order
to ease market access (EUR 3 bn). The increase in the gross financing needs is partially compensated
by the expected higher contribution of privatisation receipts over the programme period compared
to the projections in the Eligibility Report.
Total financing sources
a. SMP/ANFA profits
Total SMP and ANFA equivalent profits which could be transferred until July 2018 amount to EUR 7.7
bn. Given the Eurogroup statements of June/July 2015 the transfers of SMP and ANFA except those
transferred by the Bank of Greece are not included in the table. A decision on resuming the transfers
to Greece from other Member States may be taken in the course of the upcoming discussions on
debt reducing measures.
Replacing the transfer of ANFA and SMP profits with a higher programme financing envelope
deteriorates the DSA. The reason is that this would be replacing a grant with a loan and the
programme envelope would only cover the ANFA and SMP profits due during the programme period,
while the DSA assumes that Greece receives all the profits which run into the 2020s.
b. IMF
The IMF has unused funding of EUR 16 bn in its EFF which is to be replaced by a new three year IMF
programme, that still needs to be negotiated and agreed with the Greek authorities. The precise
envelope and quarterly profile of disbursement will be identified when the IMF will launch the new
programme. Any quarterly disbursement by the IMF would allow the ESM quarterly disbursement to
be reduced accordingly
c. Access to market financing
The main purpose of ESM financial assistance accompanied by a macroeconomic adjustment
programme is to create the conditions that would allow the beneficiary member to gradually regain
market access at affordable costs. While it is difficult to forecast when and to which extent market
access is regained, it is consistent with past experience (including Greece itself) to assume that from
the second half of the programme horizon, a beneficiary member state is able progressively to tap
the markets. The amount raised in the markets will obviously reduce the amount of resources to be

provided by the official sector. Provided overall current market conditions and the search for yield,
initial steps towards market access of Greece could even start earlier provided that a credible reform
path is pursued by the government.
Short-term financing needs
The first tranche of the new ESM programme would need to cover: (i) financing needs not related to
the banking sector between August and the release of the second tranche upon completion of the
first review; (ii) up to EUR 25 bn for financing needs in the banking sector.
The financing needs not related to the banking sector until end-October amounts to around EUR 16
bn and can be disaggregated as follow:

Debt service needs (amortisation and interest) of EUR 12.7 bn of which EUR 7 bn for the
repayment of the EFSM loan, EUR 3.4 bn payment of principal and interest to the ECB, EUR
2.2 bn payment of principal and interest to the IMF and around EUR 100 mn for the debt
service of other loans.
EUR 1 bn for arrears clearance or accounts payable.
Other fiscal needs of EUR 2.3 bn (financing of the State primary cash deficit). It is expected
that from these, the State would transfer EUR 0.5bn to the segregated account for the
management of EU Funded projects.

To cover such financing needs, the first tranche of the ESM programme appears sizeable. Against this
background and considering the MoU policy requirements, it would be advisable to split the first
tranche into a number of payments, subject to completion of different set of milestones. One option
could be to have a first tranche of around EUR 13 bn, upon the approval of the programme, followed
by two subsequent sub-tranches, following the completion by Greece of two different sets of
milestones by September and October.
A decision still needs to be reached on the disbursement that would cover the financing needs in the
banking sector. While there is agreement that EUR 10 bn should be made available immediately in
line with the euro summit statement, the timing of the disbursement of the remaining EUR 15 bn is
still under discussion. Given the uncertainties about the timing of the conclusion of the first review
and the need for a swift recapitalisation of the banking system there are compelling reasons for a
disbursement of the full EUR 25 bn with the first disbursement. Given these uncertainties, to cover
other financing needs, including for debt service such as to the IMF, until the end of the year, would
require releasing an additional EUR 2 bn.
Successive ESM disbursements would be fixed at a later date but an indicative schedule of financing
needs and possible programmes disbursements can be found in table 2.

Table 2. Greece disbursement schedule August 2015-August 2018

Financing requirements Greece
August September
A. Financing needs
State deposit financing and SDR hodlings
Debt service
State cash primary balance (-= surplus)
Banking sector needs
Arrears clearance
B. Financing sources
Privatisation revenues
B1. Programme financing
ANFA/SMP profits 1/
ESM

23.0
1.2
10.5
0.8
10.0
0.5
23.0
0.0
23.0
0.0
23.0

2.0
0.0
1.5
-0.3
0.0
0.8
2.0
0.0
2.0
0.0
2.0

IMF tranches

2015
October November

16.0
-0.3
0.7
-0.1
15.0
0.8
16.0
0.0
16.0
0.0
16.0
TBD

December

3.7
2.8
0.3
0.1
0.0
0.5
3.7
0.0
3.7
0.0
TBD
TBD

3.2
-0.4
1.3
1.8
0.0
0.5
3.2
1.2
2.0
0.0
TBD
TBD

Q1

5.9
2.9
3.9
-1.9
0.0
1.0
5.9
0.9
4.9
0.7
TBD
TBD

2016
Q2

5.4
2.8
2.4
-0.7
0.0
1.0
5.4
0.9
4.5
0.0
TBD
TBD

Q3

4.8
0.1
5.2
-1.2
0.0
0.7
4.8
0.9
3.8
0.0
TBD
TBD

Q4

1.9
-4.1
1.3
4.0
0.0
0.7
1.9
0.9
1.0
0.0
TBD
TBD

Q1

1.7
0.6
2.6
-2.2
0.0
0.7
1.7
0.3
1.3
0.3
TBD
TBD

2017
Q2

7.8
6.6
3.0
-1.8
0.0
0.0
7.8
0.3
7.5
0.0
TBD
TBD

Q3

3.8
-3.6
8.6
-1.1
0.0
0.0
3.8
0.3
3.5
0.0
TBD
TBD

Q4

4.8
-3.5
4.6
3.7
0.0
0.0
4.8
0.3
4.5
0.0
TBD
TBD

Q1

2.4
0.5
3.1
-1.1
0.0
0.0
2.4
0.0
2.4
0.3
TBD
TBD

2018
Q2

2.0
1.5
1.7
-1.1
0.0
0.0
2.0
0.0
2.0
0.0
TBD
TBD

July

2.8
0.2
3.0
-0.4
0.0
0.0
2.8
0.0
2.8
0.0
TBD
TBD

August

0.5
0.4
0.5
-0.4
0.0
0.0
0.5
0.0
0.5
0.0
TBD
TBD

Total
91.7
7.6
54.1
-2.0
25.0
7.0
91.7
6.2
85.5
0.0
TBD
TBD

Memo items
Total State Deposit Stock (end-of-month)

2.3

2.4

2.0

4.8

4.4

6.6

9.3

9.4

5.3

6.0

12.5

8.9

5.4

5.9

7.4

7.5

7.9

Note: 1/ The ANFA and SMP profits in the table only include the transfers from the Bank of Greece.