The European Stability Mechanism (ESM) has given the green light to a request by the Greek government to repay expensive International Monetary Fund (IMF) loans early. The loans to be repaid amount to approximately 2.7 billion euros.
More specifically, The Boards of Directors of the ESM and European Financial Stability Facility (EFSF) agreed on Monday to waive the mandatory repayment obligation of ESM/EFSF loans in connection with a partial early repayment by Greece to 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.
Without the ESM/EFSF waiver approved, Athens would have been obliged to make a cumulative repayment of over 52 billion euros to the ESM and EFSF in parallel to its IMF repayment.
ESM Managing Director, Klaus Regling, commented that “Greece’s early partial repayment to the IMF will be beneficial for both Greece and the ESM”.
Regling added that “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.”
According to an ESM report, the early repayment will improve the sustainability of Greece’s debt by 3% of GDP at least in the long-term, and by 1.1% this year. It is hoped that the early repayment will send a positive message to credit rating agencies, as well as foreign investors, while improving Greece’s access to markets.
Following the ESM/EFSF approval, the Washington-based Fund will now set upon to successfully conclude all necessary processes leading to the repayment, before the end of 2019. The process was initiated in September 2019, when the Greek government sent formal requests to the ESM and EFSF proposing an early repayment on part of its outstanding loans to the IMF./ibna