ocp192_en

4. DEBT SUSTAINABILITY ANALYSIS AND PROGRAMME FINANCING4. DEBT SUSTAINABILITY ANALYSIS AND PROGRAM FINANCING4.1. DEBT SUSTAINABILTY ANALYSIS4.1.1. Baseline and stress scenarios131. The debt sustainability analysis points to a slight deterioration in the debt-to-GDP ratio by theend of the decade in the current review compared to the previous one. After peaking at around177% of GDP in 2014, Greece's debt-to-GDP is expected to gradually decline to around 125 % of GDPin 2020 and around 112 % of GDP in 2022 9 (graph 20). Using the same assumptions, this represents adeterioration compared to the December 2012 targets of a debt-to-GDP of 124% in 2020 andsubstantially below 110% in 2022 10 . This deterioration is due to several factors: a lower forecast fornominal GDP, mainly reflecting a deeper adjustment in prices, a somewhat lower forecast forprivatisation revenue following delays in privatising government assets and higher arrears clearancecompared to the previous review, which may however support economic growth in the shorter termrepresenting an upside risk to the projection. In addition to the clearance of EUR 8 billion in arrearsoriginally foreseen in the programme, the current DSA assumes the clearance of an extra EUR 2.5billion in newly discovered tax refund arrears in the course of 2015. In contrast, the debt-to-GDP ratiofor 2013 at 175% is estimated to have been better than projected due to a better than anticipated fiscaloutcome.Graph 20. Greece – General Government Debt (% of GDP)18016014012010080602012 2014 2016 2018 2020 2022 2024 2026 2028 2030memo : baseline December 2012General government debt (including contingency measures)General government debt (excluding contingency measures)Source: Commission services.132. A number of stress test scenarios were made 11 , to examine the impact of various risks on theevolution of the debt-to-GDP ratio compared to the baseline (Graph 21). The main assumptionsmade in these scenarios 12 are the following:• Economic growth: The real GDP growth rate was assumed to be higher or lower by 1 p.p. each yearfrom 2014 onwards. Only the effects of a partial analysis are analysed, i.e. no repercussions on thefiscal developments are taken into account.• Interest rates: The impact of a downward revision by 50bps (positive shock with a zero interestfloor) or an upward revision of 150bps of the interest rate applying to Greek debt.9 The debt-to-GDP ratio includes the contingency measures decided, but not identified, by the Eurogroup in December 2012.10 However, these projections could be revised slightly down in case some market operations concerning the banking sector turn out morefavourably than currently assumed.11 The stress test scenarios were applied to the debt-to-GDP path including the contingency measures.12 For full details, see section 4.1.2 of the "The Second Economic Adjustment Programme for Greece: First Review – December 2012"European Economy Occasional Papers 123, December 2012.67