BRUSSELS (Reuters) – Greece’s second bailout package can make its debt sustainable, but Athens will have to stick firmly to agreed policies until 2030 and may need more money after 2014, an updated debt sustainability analysis by international lenders shows.

BRUSSELS (Reuters) – Greece will need additional relief if it is to cut its debts to 120 percent of GDP by 2020 and if it doesn’t follow through on structural reforms and other measures, its debt could hit 160 percent by 2020, a confidential analysis conducted by the IMF, European Central Bank and European Commission shows.

Most recently, the European Union (“EU”) and the International Monetary Fund (“IMF”) sought the financial support of China to resolve the European debt crisis.

“Results show that the program can place Greek debt on a sustainable trajectory,” said the analysis, marked strictly confidential.

However, it also warned that the debt trajectory was extremely sensitive and the program was “accident prone”.

It said the restructuring of privately held Greek bonds would help to initially reduce debt, but that debt would spike up again to 164 percent of GDP in 2013 due to the shrinking economy and incomplete fiscal adjustment.

“Once the fiscal adjustment is complete, growth has been restored, and privatization receipts are accruing, steady reductions of the debt ratio commence. Greece would have to maintain good policies through 2030 to reduce the ratio below 100 percent of GDP,” the report said.

It said that when Greece tries to return to markets after 2014, it would first have to issue short term debt and still pay high interest rates because its debt ratio would still be high, it would have senior debt to pay back first and it would need to establish a considerable track record with the market.

“This would initially discourage large issuances and imply continued reliance on official financing, as committed by Euro area member states on standard EFSF borrowing terms, provided Greece successfully implements its program,” the report said.

LOTS OF RISKSThe road to sustainable debt will be long and fraught with risks, the authors said, underlining the delicate balance Greek politicians are going to have to make in the coming decades.

“The Greek authorities may not be able to implement reforms at the pace envisioned in the baseline,” it said.

“Greater wage flexibility may in practice be resisted by economic agents; product and service market liberalization may continue to be plagued by strong opposition from vested interests; and business environment reforms may also remain bogged down in bureaucratic delays,” it said.

It may take Greece much more time than assumed to identify and implement the necessary structural and fiscal reforms to improve the primary balance from -1 percent in 2012 to the required 4.5 percent of GDP, it said.

“Concerning assets sales, delays may arise due to market related constraints, encumbrances on assets, or political hurdles. And of course a less favorable macro outcome would itself further hurt policy implementation prospects,” it said.

In the less favorable scenario, the debt ratio would peak at 170 percent of GDP in 2014.

Fiscal deficit has varied from 2.5% to 7% but we would like to focus on the debt to GDP ratio.

Once growth recovers, fiscal policy achieves its target and privatization picks up, debt would begin to slowly decline.

If the government did nothing, things would worsen as it is time when some action is required on not just fiscal policy but the overall economic policy.

The analysis forecasts that after another year of recession this year, the Greek economy will stabilize in 2013 and see a mild recovery in 2014 2017 and then growth at its potential rate of 2.5 percent annually.

Athens is expected to generate a primary surplus of 4.5 percent in 2014 from a 1 percent deficit this year — a crucial factor because if the primary surplus is stuck below 1.5 percent of GDP, Greek debt would be on an ever increasing path.

There have been sound bytes from the finance ministry that the deficit for 2012 13 will be around 5.1 percent of GDP.

Greece is expected to obtain 45 billion euros from privatization until 2020, although it is likely to get only 12 billion by 2014, the report said.

Contracts for hundreds of billions of euros would presumably remain in dispute.

If it gets on 10 billion euros by 2020, the debt ratio in that year would be 130 percent.

Stefanie O'Neill is a business journalist based in Hong Kong, China. Stefanie has a passion for financial markets and breaking news stories and loves writing about business news, stock market, and economic opinions that matters most to its audience. Stefanie spends a lot of time discovering and researching latest financial markets and industry news stories in order to make sure the latest and greatest stories are brought to you first on BigBoardNews.com.