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Source: Bloomberg
By Sotiris Nikas and Paul Tugwell
August 4, 2023
Friday’s decision helps draw a line under the debt crisis that erupted in 2010 and required three international bailout programs as Greece’s membership of the now 20-member euro zone was thrown into question.
It also follows the resounding reelection of Prime Minister Kyriakos Mitsotakis, who’s pledged sound state finances and a continuation of the economic reforms he embarked on four years ago.
“A steady trajectory of decline in public debt, on the back of high inflation, above-potential real economic growth, low average interest costs of the prevailing debt portfolio and achievement of primary fiscal surpluses” is among drivers for the upgrade, Scope said in a statement lifting Greek sovereign rating to BBB- from BB+.
It also cited “sustained European institutional support for Greece,” while added that “credit ratings remain challenged,” mainly due to high government debt.
Note: S&P classified Greece “selective default” February-May and for two weeks in December 2012
The upgrade was widely expected by investors, who have been buying the nation’s bonds at lower yields than those of investment-grade peers like Italy, making them the euro area’s best performers this year. That’s a turnaround after many were burnt in the largest sovereign restructuring in history.
Scope’s assessments aren’t currently recognized by the European Central Bank — meaning it won’t accept Greek bonds as collateral. But that situation may change soon as the Frankfurt-based institution reviews Scope’s eligibility.
Analysts expect other ratings firms to follow Scope’s example over the coming months, with Mitsotakis targeting upgrades by year-end. Before Friday’s announcement, Japan’s Rating and Investment Information Inc. was the first credit assessor to lift Greece to investment.
The move by Scope is “a development that further strengthens the forecasts for an upgrade by the end of the year also by the rating agencies recognized by the European Central Bank,” the Greek Finance Ministry said in a statement Saturday.
The government will continue the same policy of fiscal seriousness and responsibility which is the only stable basis for the development of the Greek economy, the ministry said.
DBRS Morningstar on Friday highlighted that Greece is on the threshold of an investment grade rating, saying it was focused on the implementation of structural reforms, improvements in economic prospects and the country’s commitment to fiscal consolidation.
| Greece’s Upcoming Rating Reviews: |
|---|
| DBRS Morningstar (BB): Sept. 8 |
| Moody’s (Ba3): Sept. 15 |
| S&P (BB+): Oct. 20 |
| Fitch Ratings (BB+): Dec. 1 |
With Mitsotakis planning to repay rescue loans early and trim the ratio of debt to economic output below 140% by 2027 from a high of 206% in 2020, investors had already been piling into Greek bonds.
The benefits of attaining investment status will be huge and haven’t been fully priced in yet, according to Bank of Greece Governor Yannis Stournaras. Only one in 10 funds can invest in a jurisdiction rated below that, he said last month.
Other Mitsotakis promises for his second term include cutting unemployment to 8%, boosting exports to 60% of gross domestic product and returning to primary budget surpluses of 2%-2.5% of GDP a year.
“Structural reforms that have meaningfully curtailed high non-performing loan ratios and substantively enhanced banking-system stability alongside policies aligned with Recovery and Resilience Facility funding and the European Semester mobilizing investment and boosting recovery” also supported Friday’s action, Scope said.
— With assistance by Sonja Wind, Aline Oyamada, and Hari Govind
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