Greece’s economic future is nearing a crucial moment

Discussions are heating up over future debt repayments for Greece, with the country hoping to break free from years of financial assistance since the euro zone sovereign debt crisis that ravaged its economy.

The International Monetary Fund (IMF), European creditors and the Greek government are hashing out the final details of a deal that will make it easier for Athens to repay its debts. The issue is getting more pressing by the day as Greece prepares to end its third financial rescue of 86 billion euros ($ 101.38 billion) in August. Until then, the Greek government needs certainty about its debt relief to enable it to claim a successful breakaway from international assistance, after eight years.

Why does it matter?

Greece will be looking to finance itself in the public markets after August. But without clear details — or even significant changes — on its future debt, Athens is likely to face higher borrowing costs as investors turn away from the country, thus increasing the likelihood of more economic pain for the embattled southern European nation.

The country currently sits on a debt pile of about 180 percent compared to its gross domestic product (GDP) — the highest in the euro zone.

Sakis Mitrolidis | AFP | Getty Images

The IMF has said it needs an agreement on debt relief by Thursday to have enough time to disburse the 1.6 billion euros it still wishes to give to Greece as part of its third bailout. The fund has so far refused to give money to Greece until its debt is made more sustainable — relaxing the terms and potentially reducing the payments but making them over a longer time period.

Though the money from the IMF is not a significant amount compared to the 86 billion euros that the European creditors proposed, its financial commitment is essential for credibility purposes.

"Having the IMF on board would be one of the best ways to signal to market participants that Greece can now sustainably look after itself," Constantine Fraser, a Europe analyst at research firm TS Lombard told CNBC via email.

He added that Germany is also determined to see the IMF sign off on the current bailout. "After all, IMF participation was a precondition for the Bundestag (German Parliament) agreeing to the 2015 bailout."

Will there be more debt relief?

This is not the first time that these international institutions have discussed debt relief for Greece. In fact, this has been an ongoing subject since 2015.

A woman walks past a graffiti refering to the Greek debt and reading 'Forever a loan' outside the Academy of Athens building on August 28, 2017.
Louisa Gouliamaki | AFP | Getty Images
A woman walks past a graffiti refering to the Greek debt and reading 'Forever a loan' outside the Academy of Athens building on August 28, 2017.

In 2016, there was an agreement to grant some short-term measures that would alleviate its debt burden. These included an extension of maturities related to loan repayments from the second bailout program. There was also a decision that Greece would not have to pay any capital nor interest related to that second bailout until 2023.

The focus is now on granting medium and long-term debt assistance. These measures are set to be linked with Greece's future growth rates, meaning that the more the economy grows, the more debt repayments Athens will have to make.

However, the different creditors do not agree if this link should be automatic or subject to annual approval by the various national governments.

Fraser from TS Lombard believes there will be an agreement Thursday, at a euro zone finance ministers' meeting in Brussels. "But this isn't a safe bet, and a delay until the next Eurogroup (in June) can't be ruled out," he said.

How big is the Greek debt burden?

CNBC combined all the of the debt repayments that are due from Greece's second and third bailout programs in the chart above. The data are available on the website of the main creditor of Greece — the European Stability Mechanism (ESM).

It is clear that Greece will need around 12 billion euros in the year of 2052 to service its debt. Repaying loans in the late 2040s will also demand between 6 billion and 8 billion euros per year.

However, once creditors find a compromise, these levels could be changed and Greece might have lower, albeit longer, debt repayments.

After a decade of economic turmoil and about 260 billion euros in bailout money, Athens seems to be slowly returning to growth. It registered a positive growth rate of 1.4 percent in 2017, after contracting 0.2 percent in the previous year.

According to forecasts from the European Commission, the country is set to grow 1.9 percent in 2018 and 2.3 percent the year after.

Nikolas Joao Kokovlis | SOPA Images | LightRocket | Getty Images
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