Moody’s Ratings has upgraded the Greek Government’s long-term local currency (LC) and foreign currency (FC) issuer ratings from Ba1 to Baa3. However, the country’s outlook has dropped from positive to stable.
LC senior unsecured ratings have received the same bump, while the FC senior unsecured shelf and senior unsecured medium-term note programmes have risen from (P)Baa3 to (P)Ba1. The government’s other short-term credit rating has gone from (P)NP to (P)P-3.
The change has been made in light of improvements to the country’s sovereign credit profile. These include institutional changes to markets, a strong policy stance from the government and political stability, Moody’s said. “We expect Greece to run substantial primary surpluses which will steadily decrease its high debt burden,” it noted.
Also considered were improvements to the banking sector, minimising the chance of and credit events impacting the sovereign credit profile.
Moody’s expects Greek debt to continue to diminish, and to see large primary surpluses in the near future. The debt-to-GDP ratio has dropped approximately 50 percentage points since 2020 highs, and by 27% percentage points. This gives Greece better resilience to potential future shocks, it noted.
“We estimate that it stood at 156.1% of GDP at the end of 2024 and project that it will decline to 148.3% and 140.6% in 2025 and 2026 respectively,” it predicted.
The concurrent drop in outlook ratings is the result of expected slow movement around large-scale reforms. “Completing institutional and growth-enhancing economic structural reforms will take time,” Moody’s confirmed. “Though debt-to-GDP has fallen quickly in recent years, [Greece] will remain one of the highest in our rated universe through the end of this decade.”
Recovery and Resilience Facility bonds are currently being used by Greek authorities to introduce credit-supporting policies to minimise risks and prevent rating downgrades.
Currently, Moody’s believes that ratings downgrades would be the result of unsuccessful or U-turned policies domestically or geopolitical risk more broadly – although this would impact the eurozone as a whole.
LC and FC country ceilings have been raised to Aa3 from A1, putting Greece in line with “typical” eurozone countries. “[This] reflects benefits from the euro area’s strong common institutional, legal and regulatory framework, as well as liquidity support and other crisis management mechanisms. It also reflects our view of de minimis exit risk from the euro area,” Moody’s explained.
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