The literature suggests that high levels of non-performing loans adversely affect the pace of economic recovery (Klein, 2013, Nkusu, 2011). Furthermore credit constraints are especially likely to affect mostly high-leveraged, low growth firms operating in concentrated banking systems (Dimelis et. al. 2016), features that are characteristic to Greece.
The debt-stabilizing primary balance can be approximated by (r – g) times the debt/GDP ratio, where r and g are the nominal interest rate and GDP growth rates, respectively. For example, for (r – g) around 2 and debt of around 100 percent of GDP, a primary balance of 2 percent would be needed to stabilize the debt (and a higher one to bring debt down). For higher debt-to-GDP ratios, the primary surpluses need to be higher to stabilize debt and even higher to bring debt down to safer levels.
Interest on deferred interest accrues at a fixed rate of 1½ percent per year until 2040 after which it accrues at the long-run official rate of 3.8 percent.
An indicative discount rate of 3-5 percent is used for the NPV calculations, which are made for the projection horizon (2016-60).
For example, for low income countries, the HIPC/MDRI initiatives provide for debt relief contingent on a set track record of program implementation.