Greece will save about 75 million euros a year from an early repayment of a 2.9-billion-euro International Monetary Fund (IMF) loan carrying a 5.13 pct interest rate.
- The amount saved is deducted from the country's financing needs, thus leading European institutions to better review their debt sustainability analysis, taking into account new data on bond markets.
- A message is being sent to markets and European institutions that the country is now able to meet its own financial needs and pay off part of them faster, thus saving resources due to the large interest rate spread between the IMF loan and the annual weighted average interest rate on debt servicing.
Finance Minister Christos Staikouras will brief his counterparts at the Eurogroup in Helsinki on Friday on the government's intentions and will also send a letter of the government intentions to the European Financial Stability Facility (EFSF) and European Stability Mechanism (ESM).
The agreements with the eurozone member states that have received loans from the ESM provide that the European Mechanism has a 'preferred creditor' status, as does the IMF. That is, if a country owes its debt to the IMF without the approval of the ESM, then that country will have to pay directly to the ESM (and its predecessor the EFSF) the corresponding proportion of its outstanding loan. That is, if Greece repaid 2.9 billion euros (32.9 pct of its total IMF debt) without ESM approval, it would have to pay 62.77 billion euros to the ESM and the EFSF.
The total amount of loans from the IMF is 8.8 billion euros and, with the early repayment of the expensive part of this amount, the weighted average interest rate on the loan from the Fund will drop below 3 pct. The whole process will take about two months and is expected to be completed by the end of November. In this case, the two tranches to the IMF that expire in early December (312 million euros on 3/12 and 156 million euros on 4/12) will be discounted, along with the other tranches that expire in 2020.