May 23, 2016 / 4:30 PM / 3 years ago

CORRECTED-UPDATE 1-IMF staff report says Greece needs revised fiscal, growth targets

(Corrects euro loan amount, fifth paragraph)

By David Lawder

WASHINGTON, May 23 (Reuters) - The International Monetary Fund said on Monday that Greece’s current budget surplus and growth targets for its bailout program are unrealistically high and should be revised downward, and Greece’s debt needs to be restructured.

In a debt sustainability analysis report, IMF staff said few countries have ever managed a 3.5 percent primary budget surplus for long, and there is little political support for the deep cuts that would make that achievable.

“In view of this, staff believes that the DSA should be based on a primary surplus over the long run of no more than 1.5 percent of GDP. This target would in staff’s view be within the realm of what is plausible,” the IMF staff report said.

The new analysis was released a day before European finance ministers meet on Tuesday to review Greece’s bailout and discuss the potential for debt restructuring.

While Germany and some other euro zone countries oppose the IMF’s calls for Greek debt relief, some ministers hope to be able to agree that Athens has met the conditions for release of 10 billion euros ($11.2 billion) in new loans to avoid another default in July.

IMF staff said that lower targets would still be sufficiently ambitious for European lenders to support. They said that with the lower targets - and a better chance for success - Greece could meet IMF criteria for “exceptional access” lending criteria.

The Fund has that substantial debt relief for Greece is required for it to participate in a new bailout program.

The staff report called for a “substantial reprofiling” of European loans and said extending maturities by up to 30 years could reduce gross financing needs by 7 percent of gross domestic product by 2060. It said deferring payments through 2040 could reduce gross financing needs by another 17 percent of GDP.

The staff report also said that to ensure that debt can remain on a downward path, official interest rates would need to be fixed at no more than 1.5 percent until 2040. (Reporting by Jason Lange and David Lawder; Editing by Dan Grebler)

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