IMF warns that Greece needs $75b more

A banner in support of a "no" vote for Sunday's referendum in Athens. Moody's warned that creditors are now less likely to support Greece, regardless of the outcome of the referendum over bailout terms.
A banner in support of a "no" vote for Sunday's referendum in Athens. Moody's warned that creditors are now less likely to support Greece, regardless of the outcome of the referendum over bailout terms.PHOTO: EUROPEAN PRESSPHOTO AGENCY

Moody's slashes country's debt rating deeper into junk territory in fourth downgrade

The International Monetary Fund (IMF) has warned that Greece may need at least €50 billion (S$75 billion) to get its finances back on track even under existing creditor plans.

In a draft of its latest debt sustainability report, the IMF said that Greece would need an extension of its European Union loans and a large debt write-off if it grows more slowly than expected and the economic reforms are not implemented, Reuters said.

The IMF warning came as Greece edged closer to the precipice ahead of a crucial referendum on Sunday as top ratings agency Moody's slashed its debt rating deeper into junk territory.

The fourth ratings downgrade for the country this week came even as Ms Christine Lagarde, who heads the IMF, again urged Greece to take steps to reform its economy before getting bailout aid.

Moody's cut the country's rating to "deep-junk" Caa3, or just above default. The ratings agency warned that official creditors are now less likely to support Greece, regardless of the outcome of the referendum on whether to accept conditions tied to bailout funds.

RECOVERY AT RISK

Falling chances of an agreement with its creditors lower Greece's chances of further funding support, putting its recovery prospects in jeopardy.

MS RADHIKA RAO, DBS economist

The ratings directly affect a country's ability to borrow.

Moody's added that Greece was likely to default on its remaining privately held debt owing to the impasse with the lenders. The downgrade came after Greece's bailout package expired without a replacement on Tuesday, and Athens missed a €1.6 billion IMF debt repayment.

Confidence in the Greek govern-ment's intentions is fast fading after Greek Prime Minister Alexis Tsipras flip-flopped yet again, urging Greeks to vote against conditions set out in last week's creditor proposal. That was just hours after he told the European authorities that he could accept most of them.

Further downgrades to Greece's debt ratings remain on the cards, with a "no" vote "likely increasing the risk of exit from the euro area, which would impose significant losses on private-sector creditors", Moody's said.

Creditors are finding it hard to negotiate with a government that is seeking a mandate and continues to urge the populace to reject bailout terms, DBS economist Radhika Rao said yesterday. "Falling chances of an agreement with its creditors lower Greece's chances of further funding support, putting its recovery prospects in jeopardy. Overall, there is little for the rating agencies to draw confidence from, with any bearish outcome from the referendum to heighten Grexit risks and trigger another wave of downgrades by the rating agencies."

The Moody's move follows similar action by its rating peers this week, including Standard & Poor's and Fitch, Ms Rao said. "The downgrade was largely driven by uncertainty ahead of the referendum, just as Greece's default risks have risen and its membership in the currency union hangs in fine balance."

A "yes" vote could revive talks, likely with a new government in place, while a "no" vote would further lift the chances of an eventual Greek euro exit, analysts say.

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A version of this article appeared in the print edition of The Straits Times on July 03, 2015, with the headline 'IMF warns that Greece needs $75b more'. Print Edition | Subscribe