Greece Plans to Keep Selling New Debt Despite No Financing Needs

(Bloomberg) -- After a decade-long debt crisis that made Greece a bond-market pariah, the country now enjoys the luxury of having no financing needs for 2020. Yet the government’s 2020 budget shows it still plans to sell new debt.

Despite a cash buffer of some 32 billion euros ($35.6 billion) left over from the country’s bailout program, Greece wants to maintain the good momentum of 2019 after yields hit record low levels in October. The aim is to reduce total debt seen at 329.3 billion euros in 2019, not only as a percentage of gross domestic product, but as an absolute number too.

Greek borrowing needs for 2020 will be 1.9 billion euros, according to next year’s budget. But this amount is expected to be covered by using some of the primary surplus, privatization receipts and by the proceeds from Greek bonds that central banks bought during the crisis under the Securities Market Program (SMP) and the Agreement on Net Financial Assets (ANFA).

Yields on the benchmark 10-year issue are now trading some 68% lower than at the beginning of the year, around the same level as for the Italian equivalent. What’s more, Greece got paid by investors in October for the privilege of lending it cash after sales of 13- and 26-week bills drew negative yields.

Investors have applauded the new government’s early policy decisions: to unblock flagship investments, such as the long-stalled Hellinikon project, to stick to the agreed fiscal targets for 2021 and to quickly proceed with a plan to help banks reduce their bad loans by some 40%.

In 2020, Greece may try to take advantage of this momentum in order to:

• Reduce by 4 to 5 billion euros the amount of treasury bills that currently stand at 12.6 billion euros.
• Make early repayment of part of the 4 billion euros of bonds that were issued in 2012 after the restructuring of Greek debt -- known as PSI -- and whose holders didn’t exchange them in a 2017 debt swap offer.
• Pay back earlier than scheduled an additional 2 billion euros of loans from the International Monetary Fund.

Investment grade

If the government proceeds with all these plans, then there will be space to sell some 7 billion euros of new debt without burdening the already high public-debt level.

Greece’s ultimate goal is to regain investment-grade status. Standard & Poor’s raised its sovereign credit rating for the country to BB- from B+ in October, three levels away from the pursued goal. Fitch’s rating is also three notches away from investment grade, while Moody’s is four levels off.

The Mediterranean nation can return to the investment-grade zone -- exited in 2010 -- by the end of the first half of 2021, according to Prime Minister Kyriakos Mitsotakis.

The country is banking on a combination of the debt management plan, the implementation of its reform agenda, the sharp reduction of banks’ bad loans, achieving high primary surpluses and ensuring the investments that will boost growth.

To contact the reporter on this story: Sotiris Nikas in Athens at snikas@bloomberg.net

To contact the editors responsible for this story: Chad Thomas at cthomas16@bloomberg.net, Paul Tugwell, Iain Rogers

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