Greece has officially launched the process for the early repayment of the loan to the International Monetary Fund (IMF). On Monday Finance Minister Christos Staikouras signed the letters to be sent to the European Stability Mechanism (ESM) and the Eurogroup, presenting Greece’s plan for an early repayment of part of IMF loan: 2.9 billion euros with a 5.13%, out of a total of loans amounting to 8.8 billion euros.
The process is expected to last around two months and, following its completion, the weighted average interest of IMF’s loans is reportedly expected to fall below 3.0%.
The 2.9-billion-euros loans expire in the time period from December 3, 2019 to January 18, 2021 and bear a high annual interest rate of 4.91%, while the average debt service cost and the yield of 10-year Greek bonds are below 1.6%.
This interest rate difference results in profits of approximately €70 million for the Greek State.
The repayment will be made with money raised by Greece through the bonds issued in 2019.
Staikouras launched the process after consultations with the country’s creditors.
The process of approving the Greek request for early IMF repayment is expected to take about two months. The ESM and EFSF will consider the request, draw up a new debt sustainability analysis, and the Eurogroup will give the “green light” to move the process forward.
Formal approvals will also be required from the parliaments of some eurozone countries.
Following that, Greece will send a written request to the IMF for early repayment of 2.9 billion euros, that is 32% of the total debt to the Fund. The IMF Executive Board will give its consent to complete the process.
Following the early repayment of 2.9 billion euros, Greece will reduce its IMF loan liabilities from 8.8 billion euros to 5.9 billion euros, with the latest installment ending on 3 June 2024.
In fact, if Greece repaid EUR 2.9 billion (32% of its total debt to the IMF) without the ESM and EFSF’s “green light” then it would have to pay EUR 61.1 billion to the European Mechanisms. (32% of the 190.8 billion euros lent to the country).
The early repayment of the IMF loan will “enhances the country’s credibility” and have “indirect positive effects on the country’s credit rating,” Staikouras said.
Upon the news on Monday, Greek state bond prices rallied and yields fell sharply in the domestic electronic secondary bond market The 10-year yield was 1.54% down from 1.61% on Friday, while the yield spread against the 10-year German Bund fell to 2.11% from 2.15%.
. On Monday Finance Minister Christo){kind=link}