BoG – Debt / GDP ratio increased by 27% in 2030

The Greek public debt seems to have “swelled” by about 50 billion euros, due to the pandemic.

The Bank of Greece emphasizes, in its interim report on Monetary Policy, that the pandemic has caused a major change in public debt calculations, which is causing changes in its profile for the coming years.

It is now estimated that in 2030 the debt / GDP ratio will be 27 points higher than the estimates made before the pandemic.

In essence, this is an additional burden of 50 billion euros. The key question, then, is whether its viability is affected, despite the fact that a debate is starting in Europe to set country limits.

Sustainability

According to the updated estimates of the Bank of Greece, the medium-term viability of the public debt remains guaranteed. However, due to reduced economic activity during the pandemic period, emergency budgetary measures
2020-22 (totaling € 37.6 billion) and additional borrowing from European resources (RRF, SURE), both public debt as a percentage of GDP and gross public financing needs have been significantly the pre-pandemic baseline forecast scenario. More specifically, the debt-to-GDP ratio is expected to reach 138% in 2030 (approximately 27 percentage points of GDP higher than pre-pandemic estimates).

At the same time, provided that cash is maintained at a high level, annual gross financing needs for the next decade will now average around 3 percentage points higher than forecast before the pandemic, but remain lower than the reference level of 15% of GDP.

According to Budget 2022, provided that the pandemic is reduced and the recovery continues, an improvement in the primary fiscal balance is foreseen according to the definition of enhanced surveillance, with a reduction in the deficit to
relation to 2021 and its formation at 1.2% of GDP. Government debt is projected to escalate to 189.6% of GDP in 2022 from 197.1% of GDP in 2021.

Favorable composition and surpluses

From the sensitivity analysis of the baseline scenario, the BoG underlines, the following key conclusions emerge: The declining dynamics of the public debt to GDP ratio is not disturbed in the medium term under adverse macroeconomic and fiscal scenarios, which is a strong indication of resilience under adverse disorders.

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This is primarily due to the favorable composition of public debt, which consists of 99% of fixed interest debt and 77% of liabilities to the formal sector, but also the long repayment period, as it has been formed in the medium-term debt relief measures.

Especially in the case of Greece, the medium-term viability of public finances is also judged – both by the markets and by the policy makers – and based on the criterion of gross financial needs. Under this criterion, the risks to sustainability under the different adverse scenarios are clearly increased, eliminating any room for relaxation of primary surplus targets.