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### Developments since last summer: need for realignment of policy and DSA assumptions
- Progress under the August 2015 program occurred in some areas; growth and primary balance outturns last year were better than expected, but the government has not mobilized political support for the pace of reforms required to retain the June 2015 DSA’s ambitious assumptions.
- Authorities’ current policy plans in fiscal, financial sector stability, labor, product and service markets fall well short of what is required to achieve prior fiscal and growth targets.
- Staff revised DSA assumptions for primary balance and growth to align with evident political and social constraints.

### Primary surplus: revised assumption and rationale
- Observed fiscal relaxation since mid-2014 reflects prior reliance on hiking already high tax rates on a narrow base and ad hoc spending cuts not supported by structural reform.
- Worsening tax compliance and severely compressed discretionary spending imply additional adjustment can only be achieved by:
  - measures to broaden the tax base, and
  - lowering outlays on wages and pensions, which by now account for as much as 75 percent primary spending.
- Little political support exists for such measures; proposed automatic ex-post across-the-board spending cuts are not an effective substitute.
- Staff view: it is unrealistic to assume Greece can undertake the additional adjustment of 4½ percent of GDP needed to base the DSA on a primary surplus of 3½ percent of GDP.
- Staff revised long-run primary surplus assumption to 1½ percent of GDP as plausible but still ambitious given current institutional and political constraints.
- Historical note: the small primary surplus in 2013 proved short-lived, as two successive governments yielded to pressures to spend it.

### Growth: revised assumption and constraints
- Absence of political support for broad, rapid structural reforms makes untenable the previous assumption that Greece could quickly move from one of the lowest to one of the highest productivity growth rates in the eurozone.
- Financial sector constraints:
  - Bank recapitalization completed in 2015 lacked an upfront governance overhaul to address susceptibility to political interference.
  - High levels of NPLs and a high share of Deferred Tax Assets in bank capital imply very weak bank balance sheets for years, reducing banks’ ability to provide credit at scale needed for ambitious growth.
  - Cited empirical literature links high NPLs to adverse recovery and credit constraints especially affecting high-leveraged, low growth firms in concentrated banking systems.
- Broader structural reforms:
  - Further postponement of reforms to collective dismissals and industrial action frameworks to fall 2016 (overdue since 2014).
  - Extremely gradual pace in tackling pervasive restrictions in product and service markets.
- Staff lowered long-term growth assumption to 1¼ percent while expecting a stronger medium-term rebound as the output gap closes. The revised long-term assumption remains ambitious, conditional on steadfast reform implementation.

### Other DSA assumptions and banking sector contingent liabilities
- Privatization assumptions remain broadly unchanged relative to June DSA given the dismal record achieved so far.
- Staff expects no receipts from bank privatization and projects additional contingent liabilities from the banking sector to materialize in the future; an allowance of around €10 billion has been made in the DSA.
- Market interest rates are assumed to remain elevated immediately following the program period and to respond endogenously to debt dynamics.

### Methodology: switch to a GFN (flow) framework and debt composition
- Staff recommended switching from a stock (debt-to-GDP) to a flow (gross financing needs, GFN) framework to better capture Greece’s true debt burden, given that the bulk of Greece’s debt is provided by European partners on highly concessional terms.
- Concessional debt accounts for around two thirds of the total, or over 120 percent of GDP, with weighted average grace and maturity periods of around 15 and 40 years, respectively, and with a weighted average floating interest rate of around 1.2 percent.
- Under the GFN framework a considerably longer projection horizon is required; staff had proposed a horizon until 2060.
- Staff argued any restructuring should:
  - maintain GFN well within the 15-20 percent of GDP thresholds defined in the MAC DSA for emerging-advanced economies throughout the projection period (2060), with the lower bound binding for the foreseeable future until institutional frameworks are strengthened, and
  - ensure that debt is on a sustained downward path (temporary flow relief without a declining debt path is not consistent with sustainability).

### GFN and GFN-target guidance
- Staff’s analysis suggests gross financing needs should remain below 10 percent of GDP until about 2040, rising to 20 percent by 2060, to satisfy sustainability objectives.
- Fixing financing needs at 15 percent of GDP until 2040 would be insufficient and would imply rising GFN and debt after 2040.

### Baseline projections (without restructuring) — selected figures
- Debt projections:
  - around 174 percent of GDP by 2020,
  - 167 percent by 2022,
  - projected to decline gradually to just under 160 percent by 2030 as output gap closes,
  - then trend upwards reaching around 250 percent of GDP by 2060.
- Gross Financing Needs (GFN) projections:
  - GFN cross the 15 percent-of-GDP threshold by 2024,
  - cross the 20 percent threshold by 2029,
  - reach around 30 percent by 2040,
  - close to 60 percent of GDP by 2060.
- Debt dynamics driven by rising cost of debt as market financing replaces highly subsidized official financing, offsetting growth and primary balance effects.

### Restructuring modalities needed to restore sustainability — combination and calibration
- Staff conclude a substantial reprofiling of European loan terms is required to bring GFN down by around 20 percent of GDP by 2040 and an additional 20 percent by 2060.
- Three complementary measures and one illustrative calibration:
  - Maturity extensions:
    - extension of maturities for EFSF loans up to 14 years, for ESM loans 10 years, and for GLF loans 30 years.
    - Could reduce the GFN and debt ratios by about 7 and 25 percent of GDP by 2060 respectively.
    - Maturity extensions alone would be insufficient to restore sustainability.
  - Payment deferrals:
    - Extending deferrals on debt service could reduce GFN further by 17 percent of GDP by 2040 and 24 percent by 2060.
    - Could lower debt by 84 percent of GDP by 2060 by allowing Greece to benefit from low ESM interest rates for longer.
    - Would imply extensions of grace periods ranging from 6 years on ESM loans to 17 and 20 years for EFSF and GLF loans, extension of current deferral on interest payments on EFSF loans by a further 17 years and interest deferrals on ESM and GLF loans by up to 24 years.
    - Even with these deferrals, GFN would exceed 20 percent by 2050 and debt would be on a rising path unless additional measures are taken.
  - Fixed interest rate:
    - Official interest rates would need to be fixed at low levels for an extended period, not exceeding 1½ percent until 2040.
    - ESM could attempt to lock in rates for the entire stock of EFSF/ESM loans at current long-term market rates and eliminate the spreads applied to GLF loans.
    - If markets cannot absorb the estimated stock of about €200 billion of long-dated bonds to be placed, member states would need to ensure that the cost of refinancing Greek debt as long-term rates normalize is not borne by Greece — effectively requiring member state commitment to compensate the ESM for losses associated with fixed rates (politically and legally controversial).
    - Adding fixed interest rates to the other measures helps reduce debt by 53 percent of GDP by 2040 and 151 percent by 2060, and GFN by 22 percent by 2040 and 39 percent by 2060, which satisfies the stated sustainability objectives.

### Quantified impacts and NPV savings
- The proposed debt restructuring generates savings of around 50 percent of GDP in net present value (NPV) terms over the projection horizon.
- Of this NPV saving, 18-24 percent of GDP (€31-42 billion) is due to fixing the interest rate; the remainder arises from deferral of payments and maturity extensions.
- An indicative discount rate of 3-5 percent is used for the NPV calculations (projection horizon 2016-60).
- Staff note extended payment and interest deferrals without fixing the underlying interest rate would be insufficient because the stock of deferred interest would compound at relatively high floating rates, increasing Greece’s exposure to interest rate risk.

### Sensitivity analysis: robustness scenarios and implementation considerations
- Upside scenario:
  - Stronger-than-expected policies, resulting in somewhat higher growth (1½ percent) and no additional bank recapitalization needs, combined with staff’s restructuring, would keep GFN near 15 percent of GDP by 2060 and lead to faster debt reduction.
  - Illustrates importance of advancing structural and financial sector reforms to enhance productivity and ensure banking sector support.
- Downside scenario:
  - Weaker policies resulting in lower long-run growth (stabilizing at 1 percent) and a lower primary balance (stabilizing at 1 percent of GDP) would render debt sustainability unattainable even under staff’s restructuring with extensive deferrals and fixed rates.
  - Debt and GFN dynamics would become unstable and rising over time as deferrals would no longer ensure market access at rates consistent with sustainability.
  - To ensure sustainability under this downside, interest on EFSF/ESM loans and deferred interest would need to be reduced to zero (in essence, interest-free loans) until around 2050.
  - Staff regard even the assumed long-run primary surplus of 1.5 percent as optimistic, underscoring magnitude of downside risks.

### Implementation considerations and political economy
- Restoring sustainability requires credible policy commitments and stronger institutional and political capacity to deliver adjustment.
- With revised growth and primary balance targets, staff considers the Fund’s exceptional access criterion (strong prospects for program success) could be met, but official financing should be contingent on credible commitments.
- Fixing interest rates effectively requires commitments by member states to compensate the ESM for losses associated with fixed rates, a measure likely to be highly controversial among member states given political and legal constraints within the currency union.

### Debt relief timing and modalities (implementation completed by end of program)
- Rationale:
  - Providing an upfront unconditional component to debt relief is critical to provide a strong and credible signal to markets about the commitment of official creditors to ensuring debt sustainability and can contribute to lowering market financing costs.
  - Debt relief conditional on policy implementation should not extend beyond the program period because adjustment must be completed within the program period to catalyze investor confidence.
- Modalities:
  - Short Term:
    - Next tranche of ESM financing could be provided on the new terms (lengthened maturity, payment deferrals, and fixed interest) to signal commitment.
  - Medium Term:
    - Fixing interest rates and deferrals of payments and maturity extensions should be implemented during the program period contingent on satisfactory progress.
    - Example: at the end of each successful year of program implementation, debt service, maturities, and interest rates corresponding to one third of the EFSF/ESM/GLF loan tranches could be restructured, prioritizing tranches with shorter maturities.
    - ESM could shift funding strategy from short-term to long-term financing using direct bond issuances and derivatives (swaps and options); if markets cannot fully absorb refinancing, member states might need to make additional commitments.
  - Long Term:
    - If IMF lending exceeds the Exceptional Access threshold, an automatic mechanism linking future debt service to non-policy related factors (such as GDP shocks) could be considered upon successful completion of the program to address vulnerability to shocks after the program period.
    - Mechanism could incorporate symmetric adjustments to debt service in the event of GDP shocks, providing protections to the debtor and some upside potential to creditors.

### DSA, credibility, and frontloaded relief
- Staff’s DSA accounts for Greece’s euro-zone membership and prior pledges by European leaders to provide additional support until full market access is restored, conditional on program adherence.
- Unprecedented support already provided by the ECB (through ELA) and the ESM (through NPV relief) contributed to relative deposit stability and nascent market access recovery, but such commitments are insufficient when program adherence falters.
- For DSA credibility, it is critical that:
  - DSA be based on ambitious but realistic policy commitments from the authorities,
  - frontloaded debt relief be fully delivered during the program, and
  - an automatic debt relief mechanism after the program be available to ensure sustainability with high probability provided IMF borrowing exceeds the Exceptional Access threshold.

### Key findings from “A Sustainable Primary Balance for Greece” (Box 1)
- Staff revised Greece’s long-run primary balance to 1½ percent of GDP from 3½ percent.
- After seven years of recession and a structural adjustment of 16 percent of GDP, Greece achieved a small primary surplus in 2015 largely due to sizeable one-off factors; attaining a medium-term primary surplus target of 3½ percent of GDP would require measures of some 4½ percent of GDP.
- Without further measures, Greece will fall back into a medium-run primary deficit of around 1 percent of GDP.
- Drivers of the fiscal problem include:
  - Revenue declines as recovery relies on investment and exports (not tax rich); almost half of social contributions are not linked to income; property taxes not linked to market prices; one-off bank liquidity support revenues taper off.
  - Spending pressures re-emerge because past spending cuts were not supported by reforms: goods and services spending fell to 16 percent of primary spending (pre-crisis 19 percent; euro-area average 22 percent); health spending compressed to 4½ percent of GDP (euro-area average 7 percent of GDP) despite high old-age dependency ratios.
  - Pension system unaffordable: current spending on pensions is 17½ percent of GDP, with annual transfers to the system of around 10 percent (2½ in the euro-area). Recent reform reduces spending only marginally by 0.6-0.9 percent of GDP by 2018 and leaves main pension benefits unchanged for current retirees.
  - Tax system issues: large implicit tax-free threshold exempts more than half of wage and pension earners from income tax (compared to 9 percent euro-area average); top decile contributes 60 percent of tax revenue. Tax debt has reached 50 percent of GDP, the largest in the euro-area.
- Historical comparators:
  - During the 1990s Greece sustained a primary surplus of 1¾ for eight years; pre-crisis primary deficit averaged 1 percent of GDP and widened to 2 percent after euro adoption.
  - In a sample of 55 countries in the last 200 years, no country sustained a primary surplus larger than 2 percent of GDP after recessions longer than 5 years; Greece experienced a recession of seven years.
  - In the eurozone, only Ireland and Belgium sustained primary balances of at least 3½ percent of GDP for longer than a decade; only Ireland did so with double digit unemployment.

### Long-term growth drivers and projections (Box 2)
- Long-run growth depends on labor force developments, capital accumulation, and total factor productivity (TFP); given demographic challenges and investment constraints, TFP driven by structural reforms will be the main driver.
- Staff revised long-term growth down to 1¼ percent.
- Labor:
  - Working-age population projected to decline by about 10 percentage points by 2060.
  - Current unemployment rate around 25 percent; structural component estimated around 20 percent.
  - Staff expects unemployment to reach 18 percent by 2022, 12 percent by 2040, and 6 percent only by 2060.
  - Labor force participation expected to increase gradually from 68 to around 73 percent.
  - Contribution of labor to long-run growth estimated around -0.3 percent.
- Capital:
  - Investment fell from around 20 to about 12 percent of GDP since the crisis.
  - Staff expects the investment ratio to increase by about 30 percent to 17 percent of GDP over the medium and long run.
  - Contribution of capital to growth expected to be around 0.5 percent.
  - Financial sector constrained by NPLs at 44 percent (the second highest in the euro-zone).
- TFP:
  - From 1970 until 2008, average annualized TFP growth in the euro area was 1.2 percent; Greece had TFP of 0.7 percent historically.
  - A realistic assumption is Greece’s TFP growth reaching around 1 percent with sustained structural reforms, implying long-run GDP growth of 1¼ percent.

### Key DSA assumptions (Box 3) — selected items and projections
- Bank recapitalization needs:
  - SSM assessment identified capital needs of €15 billion. ESM program envelope set aside €25 billion for bank recapitalization. Of this, €5.4 billion was utilized in December, with the remainder of needs covered by private capital.
  - Recapitalizations added around €43 billion (over 24 percent of GDP) to public debt since 2010; NPLs rose to 44 percent of total loans at end-December; DTAs close to €20 billion constitute half of capital.
  - Staff considers a buffer of around €10 billion should be set aside to cover potential additional bank capital needs (about half of the amount of DTAs).
- Privatization proceeds:
  - Greece committed to set up a €50 billion privatization fund.
  - Staff projects €5 billion in privatization proceeds during 2015-2030 (€2 billion by 2018) and has not revised these projections since June.
  - Over the last five years, cumulative privatization proceeds amounted to around €3 billion (6 percent of targeted €50 billion; 12 percent of receipts expected through 2022).
  - Staff does not expect material proceeds from bank privatization.
- Additional financing needs:
  - Tight financing conditions in H1 2015 resulted in accumulation of arrears reaching about €7 billion, unprocessed pension and tax refund claims, and a draw-down of the state’s deposits.
  - State borrowed from other state entities through repo operations (€10.4 billion).
  - Staff projects arrears will be cleared and deposit buffers rebuilt to reach medium-term coverage of eight-months of forward-looking financing needs (€8 billion). Repo operations not to be covered by the Treasury Single Account would need to be unwound (€4.4 billion).

### Official and market interest rate assumptions (Box 3 concluded)
- Official interest rates:
  - Greece benefits from very low nominal official interest rates (weighted average of around 1.2 percent).
  - Official rates are variable and expected to revert to historical averages as financing conditions normalize.
  - Long-run risk-free rate assumed at 3.8 percent.
  - Official interest rates eventually reach 3.8 percent approximately 7 years after the risk-free rate reaches its steady state level in 2025.
- Market interest rates:
  - Assumption: Greece accesses markets by end-program at an initial rate of 6 percent.
  - Rationale: prolonged absence from markets, weak track record on delivering fiscal surpluses, and a substantial debt overhang.
  - Consistency: assumed market rate is consistent with a risk-free rate of 1-1½ percent in 2018 and a risk premium of 450-500 basis points.
  - Literature-based evolution: rate expected to fall/rise by four basis points for every one percentage point decline/increase in debt-to-GDP ratio, up to a floor of 4½ percent.
  - Regression analysis suggests staff’s assumption is at the low (optimistic) end; empirical estimates range between 6 and 13 percent.

### Regression results and stress-test design (selected technical findings)
- Regression coefficients (selected):
  - Gross debt (% of GDP): 0.0286***, -0.140***, 0.0223**, -0.124***, 0.0445***, -0.0338 (standard errors (0.00655), (0.0209), (0.0105), (0.0293), (0.0106), (0.0218)).
  - Gross debt (% of GDP) squared: 0.000947***, 0.000814***, 0.000455*** (standard errors (0.000113), (0.000154), (0.000113)).
  - Primary balance (% of GDP): 0.0289, -0.0463, 0.205***, 0.0397, 0.246***, 0.125** (standard errors (0.0534), (0.0464), (0.0581), (0.0626), (0.0473), (0.0540)).
  - Real GDP growth: -0.229***, -0.163**, -0.380***, -0.237***, -0.801***, -0.652*** (standard errors (0.0766), (0.0658), (0.0786), (0.0780), (0.0739), (0.0796)).
  - CPI inflation: 0.731***, 0.777***, 0.518***, 0.652***, -0.334**, -0.147 (standard errors (0.151), (0.129), (0.161), (0.152), (0.164), (0.163)).
- Observations: 187 in each specification.
- R-squared values: 0.230, 0.444, 0.389, 0.475, 0.769, 0.791.
- Statistical significance: *** p<0.01, ** p<0.05, * p<0.1.
- Stress-test scenarios include: Restructuring scenario, Historical scenario, Constant primary balance scenario, Primary Balance Shock, Real GDP Growth Shock, Real Interest Rate Shock, Real Exchange Rate Shock, Combined Shock, Contingent Liability Shock, Lower Growth Scenario.
- Illustrative restructuring scenario series (selected values preserved):
  - Real GDP growth: 0.0 (2016), 2.9 (2017), 3.2 (2018), 2.8 (2019), 2.4 (2020), 1.8 (2021), 1.3 (2022), 1.3 (2025), 1.2 (2030).
  - Inflation (Restructuring): -0.2 (2016), 0.7 (2017), 1.3 (2018), 1.5 (2019), 1.7 (2020), 1.8 (2021), 1.9 (2022,2025,2030).
  - Primary balance (Restructuring): -0.5 (2016), 0.3 (2017), 1.5 (2018–2030 except 2016–2017 as above).
  - Effective interest rate (Restructuring): 1.1 (2016), 1.2 (2017), 1.1 (2018), 1.2 (2019), 1.2 (2020), 1.3 (2021), 1.4 (2022), 1.3 (2025), 1.1 (2030).

### Debt projections, financing needs, and decomposition (selected series as of May 17, 2016)
- Nominal gross public debt (Percent of GDP): 134.0 (2005–2013 average), 180.1 (2014), 176.9 (2015), 183.7 (2016), 185.3 (2017), 184.9 (2018), 178.7 (2019), 173.1 (2020), 168.8 (2021), 165.6 (2022), 162.4 (2023), 159.4 (2024), 156.3 (2025), 153.2 (2026), 150.2 (2027), 147.1 (2028), 144.0 (2029), 140.8 (2030).
- Public gross financing needs (Percent of GDP): 11.9 (2005–2013), 24.9 (2014), 22.5 (2015), 17.9 (2016), 19.1 (2017), 16.3 (2018), 13.0 (2019), 8.2 (2020), 6.1 (2021), 5.4 (2022), 5.7 (2023), 9.0 (2024), 6.5 (2025), 6.3 (2026), 5.8 (2027), 5.8 (2028), 7.5 (2029), 5.9 (2030).
- Real GDP growth (percent): -2.2 (2014), 0.7 (2015), -0.2 (2016), 0.0 (2017), 2.9 (2018), 3.2 (2019), 2.8 (2020), 2.4 (2021), 1.8 (2022), 1.3 (2023), 1.3 (2024–2030 varying slightly 1.2–1.3).
- Inflation (GDP deflator, percent): 1.6 (2005–2013), -2.2 (2014), -0.6 (2015), -0.2 (2016), rising to 1.9 by 2022 and holding at 1.9 through 2030.
- Nominal GDP growth (percent): -0.6 (2005–2013), -1.6 (2014), -0.9 (2015), -0.2 (2016), 3.7 (2017), 4.5 (2018), 4.3 (2019), 4.1 (2020), 3.2 from 2023 onward.
- Ratings (Moody’s / S&Ps / Fitch): Caa3 / B- / CCC.
- Effective interest rate (percent): 4.2 (2005–2013), 2.2 (2014), 2.1 (2015), 1.1 (2016), 1.2 (2017), 1.1 (2018), 1.1 (2019–2020), rising to 1.3 (2022–2024), around 1.1–1.3 through 2030.
- Contribution to changes in public debt — selected cumulative flows:
  - Primary deficit (contribution) cumulative: -19.2.
  - Primary (noninterest) revenue and grants cumulative: 634.2.
  - Primary (noninterest) expenditure cumulative: 614.9.
  - Automatic debt dynamics cumulative contribution: -50.4.
  - Interest rate/growth differential cumulative contribution: -50.3 (of which real interest rate contribution cumulative: -10.3; real GDP growth contribution cumulative: -40.0).
  - Net privatization proceeds cumulative: -2.4.
  - Contingent liabilities cumulative: 16.3.
  - Other liabilities (bank recap. and PSI sweetener) cumulative: 5.3.
  - Residual, including asset changes cumulative: 14.4.

*Source: IMF staff estimates and analysis as presented in the content unit.*

### 2. Developments since last summer suggest that a realignment of critical policy and DSA

### 2. Developments since last summer suggest that a realignment of critical policy and DSA assumptions can no longer be deferred if the DSA is to remain credible

### Need for realignment: overarching findings
- Progress under the August 2015 program occurred in some areas, and growth and primary balance outturns last year were better than expected; however, the government has not mobilized political support for the pace of reforms required to retain the June 2015 DSA’s ambitious assumptions.
- Authorities’ current policy plans in fiscal, financial sector stability, labor, product and service markets fall well short of what is required to achieve prior fiscal and growth targets.
- Staff revised DSA assumptions for primary balance and growth to align with evident political and social constraints.

### Primary surplus: revised assumption and rationale
- Observed fiscal relaxation since mid-2014 reflects prior reliance on hiking already high tax rates on a narrow base and ad hoc spending cuts not supported by structural reform.
- Worsening tax compliance and severely compressed discretionary spending imply additional adjustment can only be achieved by:
  - measures to broaden the tax base, and
  - lowering outlays on wages and pensions, which by now account for as much as 75 percent primary spending.
- Little political support exists for such measures; proposed automatic ex-post across-the-board spending cuts are not an effective substitute.
- Staff view: it is unrealistic to assume Greece can undertake the additional adjustment of 4½ percent of GDP needed to base the DSA on a primary surplus of 3½ percent of GDP.
- Historical note: the small primary surplus in 2013 proved short-lived, as two successive governments yielded to pressures to spend it.
- Staff believes the DSA should be based on a long-run primary surplus of no more than 1½ percent of GDP — considered plausible but still ambitious given current institutional and political constraints.

### Growth: revised assumption and constraints
- Absence of political support for broad, rapid structural reforms makes untenable the previous assumption that Greece could quickly move from one of the lowest to one of the highest productivity growth rates in the eurozone.
- Two main concerns:
  1. Financial sector:
     - Bank recapitalization completed in 2015 lacked an upfront governance overhaul to address susceptibility to political interference.
     - High levels of NPLs and a high share of Deferred Tax Assets in bank capital imply very weak bank balance sheets for years, reducing banks’ ability to provide credit at scale needed for ambitious growth.
     - Supporting literature references (as reported): high levels of NPLs adversely affect recovery; credit constraints particularly impact high-leveraged, low growth firms in concentrated banking systems.
  2. Broader structural reforms:
     - Further postponement of reforms to collective dismissals and industrial action frameworks to fall 2016 (overdue since 2014).
     - Extremely gradual pace in tackling pervasive restrictions in product and service markets.
- Staff lowered long-term growth assumption to 1¼ percent, while expecting a stronger medium-term rebound as the output gap closes. The revised long-term assumption remains ambitious, assuming convergence to average euro-zone productivity growth conditional on steadfast reform implementation.

### Other DSA assumptions and banking sector contingent liabilities
- Privatization assumptions remain broadly unchanged relative to June DSA given the dismal record achieved so far.
- Given unresolved governance and NPL problems, staff expects no receipts from bank privatization and projects additional contingent liabilities from the banking sector to materialize in the future; an allowance of around €10 billion has been made in the DSA.
- Market interest rates are assumed to remain elevated immediately following the program period and to respond endogenously to debt dynamics.

### Methodology: switch to a GFN (flow) framework and debt composition
- Staff recommended switching from a stock (debt-to-GDP) to a flow (gross financing needs, GFN) framework to better capture Greece’s true debt burden, given that the bulk of Greece’s debt is provided by European partners on highly concessional terms.
- Such concessional debt accounts for around two thirds of the total, or over 120 percent of GDP, with weighted average grace and maturity periods of around 15 and 40 years, respectively, and with a weighted average floating interest rate of around 1.2 percent.
- Under the GFN framework a considerably longer projection horizon is required; staff had proposed a horizon until 2060.
- Staff argued that any restructuring should:
  - maintain GFN well within the 15-20 percent of GDP thresholds defined in the MAC DSA for emerging-advanced economies throughout the projection period (2060), with the lower bound binding for the foreseeable future until institutional frameworks are strengthened, and
  - ensure that debt is on a sustained downward path (temporary flow relief without a declining debt path is not consistent with sustainability).

### GFN and GFN-target guidance
- Staff’s analysis suggests gross financing needs should remain below 10 percent of GDP until about 2040, rising to 20 percent by 2060, to satisfy sustainability objectives.
- Fixing financing needs at 15 percent of GDP until 2040 would be insufficient and would imply rising GFN and debt after 2040.

### Baseline projections (without restructuring)
- Debt projections:
  - around 174 percent of GDP by 2020,
  - 167 percent by 2022,
  - projected to decline gradually to just under 160 percent by 2030 as output gap closes,
  - then trend upwards reaching around 250 percent of GDP by 2060.
- Gross Financing Needs (GFN) projections:
  - GFN cross the 15 percent-of-GDP threshold by 2024,
  - cross the 20 percent threshold by 2029,
  - reach around 30 percent by 2040,
  - close to 60 percent of GDP by 2060.
- Debt dynamics driven by rising cost of debt as market financing replaces highly subsidized official financing, offsetting growth and primary balance effects.

### Restructuring modalities needed to restore sustainability
- Staff conclude a substantial reprofiling of European loan terms is required to bring GFN down by around 20 percent of GDP by 2040 and an additional 20 percent by 2060.
- A combination of three measures is outlined; one calibration that yields the required adjustment includes:

  - Maturity extensions:
    - extension of maturities for EFSF loans up to 14 years, for ESM loans 10 years, and for GLF loans 30 years.
    - This could reduce the GFN and debt ratios by about 7 and 25 percent of GDP by 2060 respectively.
    - However, maturity extensions alone would be insufficient to restore sustainability.

  - Payment deferrals:
    - Extending deferrals on debt service could reduce GFN further by 17 percent of GDP by 2040 and 24 percent by 2060.
    - By allowing Greece to benefit from low ESM interest rates for longer, payment deferrals could lower debt by 84 percent of GDP by 2060.
    - Implementing this would imply extensions of grace periods on existing debt ranging from 6 years on ESM loans to 17 and 20 years for EFSF and GLF loans, respectively, as well as extension of the current deferral on interest payments on EFSF loans by a further 17 years and interest deferrals on ESM and GLF loans by up to 24 years.
    - Even with these deferrals, GFN would exceed 20 percent by 2050 and debt would be on a rising path unless additional measures are taken.

  - Fixed interest rate:
    - Official interest rates would need to be fixed at low levels for an extended period, not exceeding 1½ percent until 2040.
    - The ESM could attempt to lock in rates for the entire stock of EFSF/ESM loans at current long-term market rates and eliminate the spreads applied to GLF loans.
    - If markets cannot absorb the estimated stock of about €200 billion of long-dated bonds to be placed, member states would need to ensure that the cost of refinancing Greek debt as long-term rates normalize is not borne by Greece — effectively requiring member state commitment to compensate the ESM for losses associated with fixed rates (a politically and legally controversial measure).
    - Adding fixed interest rates to the other measures helps reduce debt by 53 percent of GDP by 2040 and 151 percent by 2060, and GFN by 22 percent by 2040 and 39 percent by 2060, which satisfies the stated sustainability objectives.

### Quantified impacts and NPV savings
- The proposed debt restructuring generates savings of around 50 percent of GDP in net present value (NPV) terms over the projection horizon.
- Of this NPV saving, 18-24 percent of GDP (€31-42 billion) is due to fixing the interest rate; the remainder arises from deferral of payments and maturity extensions.
- An indicative discount rate of 3-5 percent is used for the NPV calculations (projection horizon 2016-60).
- Staff note that extended payment and interest deferrals without fixing the underlying interest rate would be insufficient because the stock of deferred interest would compound at relatively high floating rates, increasing Greece’s exposure to interest rate risk.

### Sensitivity analysis: robustness scenarios and implementation considerations
- Two shock scenarios assess robustness of the restructuring proposal:

  - Upside scenario:
    - Stronger-than-expected policies, resulting in somewhat higher growth (1½ percent) and no additional bank recapitalization needs, combined with staff’s restructuring, would keep GFN near 15 percent of GDP by 2060 and lead to faster debt reduction, producing a virtuous cycle of lower market rates and lower debt.
    - Illustrates importance of advancing structural and financial sector reforms to enhance productivity and ensure banking sector support.

  - Downside scenario:
    - Weaker policies resulting in lower long-run growth (stabilizing at 1 percent) and a lower primary balance (stabilizing at 1 percent of GDP) would render debt sustainability unattainable even under staff’s restructuring with extensive deferrals and fixed rates.
    - Debt and GFN dynamics would become unstable and rising over time as deferrals would no longer ensure market access at rates consistent with sustainability.
    - To ensure sustainability under this downside, interest on EFSF/ESM loans and deferred interest would need to be reduced to zero (in essence, interest-free loans) until around 2050.
    - Staff regard even the assumed long-run primary surplus of 1.5 percent as optimistic, underscoring magnitude of downside risks.

### Implementation considerations and political economy
- Restoring sustainability requires credible policy commitments and stronger institutional and political capacity to deliver adjustment.
- With revised growth and primary balance targets, staff considers the Fund’s exceptional access criterion (strong prospects for program success) could be met, but official financing should be contingent on credible commitments.
- Fixing interest rates effectively requires commitments by member states to compensate the ESM for losses associated with fixed rates, a measure likely to be highly controversial among member states given political and legal constraints within the currency union.

*Source: IMF staff estimates and analysis as presented in the content unit.*

### 12. The implementation of debt relief should be completed by the end of the program

### 12. The implementation of debt relief should be completed by the end of the program

### Debt relief timing and rationale
- Providing an upfront unconditional component to debt relief is critical to provide a strong and credible signal to markets about the commitment of official creditors to ensuring debt sustainability, which in itself could contribute to lowering market financing costs.  
- An upfront component can also help garner more ownership for reforms.  
- Staff understands and supports the wish of Greece’s European partners to make further relief contingent on program implementation given the uneven record of policy implementation on the part of Greece.  
- Debt relief conditional on policy implementation should not extend beyond the program period, because that would be inconsistent with the key requirement of a Fund program that adjustment be completed within the program period in order to catalyze investor confidence.  
- Where concerns about Greece’s membership in the currency union weigh particularly heavy on confidence, it is critical to decisively end speculations by ensuring measures needed to achieve sustainability are not dependent on assessment of program implementation for many years to come.

### Modalities for delivery of debt relief
- Short Term:
  - The next tranche of ESM financing could be provided on the new terms (lengthened maturity, payment deferrals, and fixed interest) to provide a strong signal to markets about European partners’ commitment to deliver on all the elements of the restructuring.
- Medium Term:
  - Fixing interest rates and deferrals of payments and maturity extensions should be implemented during the program period contingent on satisfactory progress with program implementation.
  - Example: at the end of each successful year of program implementation, debt service, maturities, and interest rates corresponding to one third of the EFSF/ESM/GLF loan tranches could be restructured, with priority given to tranches with shorter maturities.
  - Fixing of interest rates on existing loans could be implemented by the ESM by shifting its funding strategy from short-term to long-term financing, making use of both direct bond issuances and derivatives (swaps and options), which a number of AAA sovereigns have successfully done.
  - If portions of the refinancing cannot be done fully through the markets, then member states might need to make additional commitments.
- Long Term:
  - To ensure sustainability with a high probability, provided that Greece borrowing from the IMF exceeds the Exceptional Access threshold, an automatic mechanism linking future debt service to non-policy related factors (such as GDP shocks) could be considered upon successful completion of the program to address vulnerability to shocks after the program period.
  - This mechanism could take the form of instruments that incorporate symmetric adjustments to debt service in the event of GDP shocks, providing both protections to the debtor and some upside potential to creditors.

### Debt sustainability analysis (DSA) and program credibility
- Staff’s DSA takes into account the unique features associated with Greece’s membership in the euro-zone.  
- The pledge by European leaders—first provided at the July 2011 Summit—to provide additional support, if needed, until full market access has been restored, provided the authorities adhere to their program, was critical for staff’s assessment that debt could be maintained on a sustainable path despite being projected to remain significantly above commonly accepted sustainability thresholds well into the future.  
- The unprecedented support already provided by the ECB (through ELA) and the ESM (through NPV relief) attests to the importance of such commitments, as reflected in periodic signs of relative deposit stability and nascent recovery in market access during the program period.  
- Such commitments are not sufficient when adherence to the program falters; protracted interruptions in ESM (and IMF) disbursements and the loss of access to the ECB with imposition of capital controls demonstrate this.  
- It is critical for the credibility of the DSA that it be based on ambitious but realistic policy commitments from the authorities, frontloaded debt relief to be fully delivered during the program, and an automatic debt relief mechanism after the program to ensure sustainability with high probability provided that Greece borrowing from the IMF exceeds the Exceptional Access threshold.

### A Sustainable Primary Balance for Greece (Box 1) — key findings
- Staff has revised Greece’s long-run primary balance to 1½ percent of GDP from 3½ percent.  
- This revision reflects a more realistic assessment of Greece’s ability to deliver on fiscal policy commitments, given reform fatigue after several years of consolidation, and aligns with Greece’s historical experience and cross-country evidence.  
- Greece’s challenge:
  - After seven years of recession and a structural adjustment of 16 percent of GDP, Greece achieved a small primary surplus in 2015 largely due to sizeable one-off factors; the medium-term primary surplus target of 3½ percent of GDP remains ambitious and would require measures of some 4½ percent of GDP.  
  - Without further measures, Greece will fall back into a medium-run primary deficit of around 1 percent of GDP.  
- Drivers of the fiscal problem:
  - Revenue is expected to decline relative to GDP because: (i) recovery is expected to rely on investment and exports, which are not tax rich; (ii) almost half of social contributions (e.g. self employed) are not linked to income, and property taxes are not linked to market prices; and (iii) one-off revenues from bank liquidity support will taper off.  
  - Spending pressures are likely to re-emerge because past spending cuts have not been supported by reforms: spending on goods and services fell to 16 percent of primary spending (lower than its pre-crisis level of 19 percent and the euro-area average of 22 percent). Health spending compressed to 4½ percent of GDP, below the euro area average of 7 percent of GDP, despite high old-age dependency ratios.  
  - The pension system is unaffordable and unsustainable: current spending on the pension system is 17½ percent of GDP, with annual transfers to the system of around 10 percent (2½ in the euro-area). Recent reform reduces spending only marginally by 0.6-0.9 percent of GDP by 2018 and leaves main pension benefits unchanged for current retirees.  
  - The tax system offers a large implicit tax-free threshold which exempts more than half of wage and pension earners from income tax (compared to 9 percent euro-area average); the top decile contributes 60 percent of tax revenue. Tax debt has reached 50 percent of GDP, the largest in the euro-area.  
- Historical context:
  - During the 1990s Greece sustained a primary surplus of 1¾ for eight years; over a longer pre-crisis period the primary deficit averaged 1 percent of GDP and widened to 2 percent after euro adoption. During European and IMF supported programs, the primary deficit averaged 1½ percent of GDP.  
- Cross-country evidence:
  - A 3½ percent of GDP primary surplus is difficult to achieve and sustain in the long run, especially after long recessions and with high structural unemployment. In a sample of 55 countries in the last 200 years, there were only 15 episodes of recessions longer than 5 years, and no country sustained a primary surplus larger than 2 percent of GDP after such a long period of negative growth. Greece experienced a recession of seven years.  
  - In the eurozone, only Ireland and Belgium managed to sustain primary balances of at least 3½ percent of GDP for longer than a decade, and only Ireland did so with double digit unemployment rates. Projections of double digit unemployment until the middle of the century temper assumptions on sustaining very high primary surpluses.

### What is driving Greek growth in the long-term? (Box 2) — key points and projections
- Long-run growth depends on: (i) labor force developments; (ii) capital accumulation; and (iii) total factor productivity (TFP). Given demographic challenges and investment constraints, TFP—driven by structural reforms—will be the main driver.  
- Staff revised long-term growth down to 1¼ percent given Greece’s uneven reform record.  
- Labor:
  - Working-age population projected to decline by about 10 percentage points by 2060.  
  - Current unemployment rate is around 25 percent, the highest in the OECD; structural component estimated around 20 percent.  
  - Staff expects unemployment to reach 18 percent by 2022, 12 percent by 2040, and 6 percent only by 2060.  
  - Labor force participation expected to increase gradually from 68 to around 73 percent.  
  - Contribution of labor to long-run growth estimated around -0.3 percent (derived as the change in employment growth, -0.6 percent per year, on average, times the share of labor in total income, which is around a half).  
- Capital:
  - Investment fell from around 20 to about 12 percent of GDP since the crisis. Staff expects the investment ratio to increase by about 30 percent to 17 percent of GDP over the medium and long run.  
  - Contribution of capital to growth expected to be around 0.5 percent (derived as the change in capital stock, of about 1 percent on average, after accounting for depreciation, times the share of capital in total income of about ½).  
  - Financial sector constrained by NPLs at 44 percent (the second highest in the euro-zone).  
- TFP:
  - From 1970 until 2008, average annualized TFP growth in the euro area was 1.2 percent; Greece had TFP of 0.7 percent historically.  
  - A realistic assumption is Greece’s TFP growth reaching around 1 percent with sustained structural reforms, implying long-run GDP growth of 1¼ percent.

### Key assumptions in the DSA (Box 3) — selected items
- Bank recapitalization needs:
  - The SSM bank comprehensive assessment identified capital needs of €15 billion. The ESM program envelope set aside €25 billion for bank recapitalization. Of this, €5.4 billion was utilized in December, with the remainder of needs covered by private capital.  
  - Despite recapitalizations that added around €43 billion (over 24 percent of GDP) to public debt since 2010, NPLs rose to 44 percent of total loans at end-December, and banks’ capital remains excessively reliant on deferred tax assets (DTAs), which amount to close to €20 billion and constitute half of capital.  
  - Staff considers that a buffer of around €10 billion should be set aside to cover potential additional bank capital needs (this corresponds to about half of the amount of DTAs).  
- Privatization proceeds:
  - Greece committed to set up a €50 billion privatization fund as part of its ESM-supported program. Staff projects €5 billion in privatization proceeds during 2015-2030 (€2 billion by 2018) and has not revised these projections since June.  
  - Over the last five years, cumulative privatization proceeds amounted to around €3 billion, or 6 percent of the overall targeted receipts of €50 billion and 12 percent of receipts expected through 2022. Staff does not expect material proceeds from bank privatization.  
- Additional financing needs:
  - Tight financing conditions in the first half of 2015 resulted in accumulation of significant arrears reaching about €7 billion in total, unprocessed pension and tax refund claims, and a draw-down of the state’s deposits. The state resorted to borrowing from other state entities through repo operations (€10.4 billion).  
  - Staff projects that arrears will be cleared and deposit buffers rebuilt to reach medium-term coverage of eight-months of forward-looking financing needs (€8 billion). In addition, the repo operations not to be covered by the Treasury Single Account would need to be unwound (€4.4 billion).

*Source: _cr16130 - 12. The implementation of debt relief should be completed by the end of the program*

### Box 3. Key Assumptions in the DSA (concluded)

### Box 3. Key Assumptions in the DSA (concluded)

### Official interest rates
- Greece is benefitting from very low nominal official interest rates (weighted average of around 1.2 percent), supported by the exceptional relaxation in monetary conditions in the euro zone.
- Official rates are variable and are expected to revert to their historical averages over the long run as financing conditions normalize.
- The long-run risk-free rate is assumed at 3.8 percent and is based on:
  - end-point medium-term forecast for euro area growth of 1.5 percent,
  - achievement of the ECB’s price stability objective of 1.9 percent,
  - and a modest wedge over the sum of the two.
- Official interest rates eventually reach 3.8 percent approximately 7 years after the risk-free rate reaches its steady state level in 2025, reflecting time needed to roll over EFSF/ESM funding at higher rates.

### Market interest rates
- Assumption: Greece accesses markets by end-program at an initial rate of 6 percent.
  - Rationale: prolonged absence from markets, weak track record on delivering fiscal surpluses, and a substantial debt overhang.
  - Comparison: the rate is lower than the average yield during January-May 2016 by around 300 basis points, and is in line with rates obtained by the country in 2014.
- Consistency: the assumed market rate is consistent with a risk-free rate of 1-1½ percent in 2018 and a risk premium of 450-500 basis points.
- Literature-based evolution: the rate is expected to fall/rise by four basis points for every one percentage point decline/increase in debt-to-GDP ratio, up to a floor of 4½ percent (consistent with a small long-run risk free premium of 75 basis points).
- Staff note: regression analysis suggests the staff’s assumption is at the low (optimistic) end of estimates; empirical specifications suggest a range of estimates between 6 and 13 percent.

### Regression results (Table 1) — selected coefficients and diagnostics
- Gross debt (% of GDP): coefficients reported include 0.0286***, -0.140***, 0.0223**, -0.124***, 0.0445***, -0.0338 (standard errors in parentheses: (0.00655), (0.0209), (0.0105), (0.0293), (0.0106), (0.0218)).
- Gross debt (% of GDP) squared: 0.000947***, 0.000814***, 0.000455*** (standard errors (0.000113), (0.000154), (0.000113)).
- Primary balance (% of GDP): coefficients include 0.0289, -0.0463, 0.205***, 0.0397, 0.246***, 0.125** (standard errors (0.0534), (0.0464), (0.0581), (0.0626), (0.0473), (0.0540)).
- Real GDP growth: -0.229***, -0.163**, -0.380***, -0.237***, -0.801***, -0.652*** (standard errors (0.0766), (0.0658), (0.0786), (0.0780), (0.0739), (0.0796)).
- CPI inflation: 0.731***, 0.777***, 0.518***, 0.652***, -0.334**, -0.147 (standard errors (0.151), (0.129), (0.161), (0.152), (0.164), (0.163)).
- Constant terms: 0.416, 6.640***, 1.036, 6.803***, 3.995***, 6.771*** (standard errors (0.713), (0.962), (1.134), (1.520), (1.082), (1.239)).
- Observations: 187 in each specification.
- R-squared values: 0.230, 0.444, 0.389, 0.475, 0.769, 0.791.
- Fixed effects: Country FE = YES in all; Year FE = YES in some specifications.
- Statistical significance notation: *** p<0.01, ** p<0.05, * p<0.1.

### Stress tests, scenarios, and realism checks
- Scenario types presented:
  - Restructuring scenario (with deferrals and fixed rates)
  - Historical scenario
  - Constant primary balance scenario
  - Alternative stress tests: Primary Balance Shock, Real GDP Growth Shock, Real Interest Rate Shock, Real Exchange Rate Shock, Combined Shock, Contingent Liability Shock, Lower Growth Scenario.
- Illustrative underlying assumptions (selected values preserved per scenario):
  - Restructuring scenario (selected years): Real GDP growth 0.0 (2016), 2.9 (2017), 3.2 (2018), 2.8 (2019), 2.4 (2020), 1.8 (2021), 1.3 (2022), 1.3 (2025), 1.2 (2030).
  - Inflation (Restructuring): -0.2 (2016), 0.7 (2017), 1.3 (2018), 1.5 (2019), 1.7 (2020), 1.8 (2021), 1.9 (2022,2025,2030).
  - Primary balance (Restructuring): -0.5 (2016), 0.3 (2017), 1.5 (2018–2030 except 2016–2017 as above).
  - Effective interest rate (Restructuring): 1.1 (2016), 1.2 (2017), 1.1 (2018), 1.2 (2019), 1.2 (2020), 1.3 (2021), 1.4 (2022), 1.3 (2025), 1.1 (2030).
  - Historical scenario examples: Real GDP growth 0.0 (2016), -2.0 (2017–2022,2025,2030), Inflation sequence identical to restructuring, Primary balance -0.5 (2016), -2.8 (2017–2030), Effective interest rate rising to 2.7 by 2030.
- Stress-test design notes:
  - Cells in heat maps are colored by whether benchmarks are exceeded: green if gross debt benchmark of 85% is not exceeded under the specific shock or baseline; yellow if exceeded under specific shock but not baseline; red if benchmark is exceeded under baseline; white if stress test not relevant.
  - Lower and upper risk-assessment benchmarks for various indicators are provided (examples): Bond Spread over German Bonds: 400 and 600 basis points; External Financing Requirement: 17 and 25 percent of GDP; Annual Change in Short-Term Public Debt: 1 and 1.5 percent; Public Debt Held by Non-Residents: 30 and 45 percent.
  - Percentiles for plotted distributions: 10th-25th, 25th-75th, 75th-90th.

### Debt projections, financing needs, and decomposition (selected figures)
- Selected headline series (as of May 17, 2016) — annual and projection values (Percent of GDP unless noted):
  - Nominal gross public debt: 134.0 (2005–2013 average), 180.1 (2014), 176.9 (2015), then 183.7 (2016), 185.3 (2017), 184.9 (2018), 178.7 (2019), 173.1 (2020), 168.8 (2021), 165.6 (2022), 162.4 (2023), 159.4 (2024), 156.3 (2025), 153.2 (2026), 150.2 (2027), 147.1 (2028), 144.0 (2029), 140.8 (2030).
  - Spread (bp): 723 (unspecified year label in table).
  - Public gross financing needs: 11.9 (2005–2013), 24.9 (2014), 22.5 (2015), then projected 17.9 (2016), 19.1 (2017), 16.3 (2018), 13.0 (2019), 8.2 (2020), 6.1 (2021), 5.4 (2022), 5.7 (2023), 9.0 (2024), 6.5 (2025), 6.3 (2026), 5.8 (2027), 5.8 (2028), 7.5 (2029), 5.9 (2030).
  - CDS (bp): 1029 (unspecified year label).
  - Real GDP growth (percent): -2.2 (2014), 0.7 (2015), -0.2 (2016), 0.0 (2017), 2.9 (2018), 3.2 (2019), 2.8 (2020), 2.4 (2021), 1.8 (2022), 1.3 (2023), 1.3 (2024–2030 varying slightly: 1.2–1.3).
  - Inflation (GDP deflator, percent): 1.6 (2005–2013), -2.2 (2014), -0.6 (2015), -0.2 (2016), then rising to 1.9 by 2022 and holding at 1.9 through 2030.
  - Nominal GDP growth (percent): -0.6 (2005–2013), -1.6 (2014), -0.9 (2015), -0.2 (2016), then 3.7 (2017), 4.5 (2018), 4.3 (2019), 4.1 (2020), and 3.2 from 2023 onward.
  - Ratings (Moody’s / S&Ps / Fitch): Caa3 / B- / CCC (as listed).
  - Effective interest rate (percent): 4.2 (2005–2013), 2.2 (2014), 2.1 (2015), 1.1 (2016), then 1.2 (2017), 1.1 (2018–2020 mostly), rising to 1.3 (2022–2024), and around 1.1–1.3 through 2030.
- Contribution to changes in public debt — selected cumulative and identified flows:
  - Cumulative change in gross public sector debt (2005–2013 through 2030): example cumulative total -36.1 (final line in table).
  - Identified debt-creating flows cumulative: -50.6 (final).
  - Primary deficit (contribution): cumulative -19.2.
  - Primary (noninterest) revenue and grants: cumulative 634.2 (sum over projection horizon).
  - Primary (noninterest) expenditure: cumulative 614.9.
  - Automatic debt dynamics cumulative contribution: -50.4.
  - Interest rate/growth differential cumulative contribution: -50.3.
  - Of which: real interest rate contribution cumulative: -10.3.
  - Of which: real GDP growth contribution cumulative: -40.0.
  - Exchange rate depreciation contributions and other components are reported annually with small annual values (examples include 1.7, 1.8 in some years).
  - Net privatization proceeds cumulative: -2.4.
  - Contingent liabilities cumulative: 16.3.
  - Other liabilities (bank recap. and PSI sweetener) cumulative: 5.3.
  - Residual, including asset changes cumulative: 14.4.
- Debt-stabilizing primary balance: shown conceptually in the DSA figures with the definition and the assumption that key variables remain at the level of the last projection year for the calculation.

### Figures and distributions (methodological notes)
- Predictive densities and percentile bands are used for public debt evolution and financing need projections (percentiles: 10th-25th, 25th-75th, 75th-90th).
- Forecast track record and realism assessments compare Greece’s historical forecast errors (2007–2015) for Real GDP growth (median error -3.15, percentile rank 3%), Primary balance (median error -2.21, percentile rank 16%), and Inflation (deflator) (median error -0.76, percentile rank 21%).
- Boom-bust analysis and assessment of projected fiscal adjustment use distributions for 3-year adjustment in cyclically-adjusted primary balance (CAPB) and 3-year average level of CAPB:
  - 3-year adjustment in CAPB: Greece has a percentile rank of 62% (i.e., more than 3 percent of GDP adjustment in approx. top quartile).
  - 3-year average level of CAPB: Greece has a percentile rank of 50% (3-year average CAPB level greater than 3.5 percent of GDP in approx. top quartile).

*Source: IMF staff.*

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_Source: https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2016/_cr16130.pdf_