Naftemporiki — Fitch Ratings has upgraded Greece’s Long-Term Foreign-Currency Issuer Default Ratings (IDR) to ‘B-‘ from ‘CCC’, with a ‘positive’ outlook.
From the rating report:
Fitch believes that general government debt sustainability will steadily improve, underpinned by on-going compliance with the terms of the European Stability Mechanism (ESM) programme, and reduced political risk, sustained GDP growth and additional fiscal measures legislated to take effect through 2020. The successful completion of the second review of Greece’s ESM programme reduces risks that the economic recovery will be undermined by a hit to confidence or by the government building up arrears with the private sector.
The Positive Outlook reflects Fitch’s expectation that the third review of the adjustment programme will be concluded without creating instability and that the Eurogroup will grant substantial debt relief to Greece in 2018.
The debt relief measures include restarting disbursement of profits on Greek bonds held by the ECB, partial early ESM refinancing of relatively expensive IMF loans, and further European Financial Stability Facility relief (interest rate caps, coupon deferrals and maturity extensions).
Public finances are improving. In 2016 Greece recorded a primary surplus of 3.9% of GDP, well above the ESM programme target of 0.5%, owing to higher than budgeted revenues and expenditure restraint.
The economy is gradually recovering. Recent high frequency indicators point to a faster pace of economic activity, following a weak 1Q performance due to the impact of programme delays on confidence and payments to the private sector.
In Fitch’s view, political risks have partly reduced. The Tsipras government has legislated a set of politically difficult measures and its parliamentary majority has held up. We think near-term snap elections are unlikely. Based on recent polls, Syriza trails by 15-20pp the centre-right New Democracy party, which has less ideological opposition to a number of the programme measures but has been arguing for its renegotiation in particular on the fiscal targets. Early elections would provide a source of uncertainty that would likely undermine the recent economic recovery.
