Last updated: 23:54
Scope Ratings affirmed Greece’s credit rating at BB+ (one place below investment grade) on Friday, maintaining a positive outlook.
In today’s note, which does not constitute a rating action, the house states that the Greek economy’s rating at BB+ is supported by a number of advantages.
FirstlyAnd of strong institutional support for the pandemic crisis in the form of emergency monetary and fiscal policy interventions. These include the ECB’s asset purchase program and the easing of the guarantee framework requirements that were in place from 2020.
Support from the European Central Bank has been ramped up from 2022 until the end of the year I) Confirmation that during the PEPP reinvestment phase, indicatively at least until the end of 2024, Greek bonds remain eligible for purchases as well as redemption transfers. B) Extend the waiver with respect to the eligibility of Greek secured bonds under the ECTS credit rating framework until at least the completion of the PEPP reinvestment phase. And Third) The announcement of an “anti-fragmentation” program to avoid excessive fragmentation of the Eurozone government’s revenue margins – supporting the transmission of the ECB’s monetary policy to the Greek economy.
It also notes a strong decline in the ratio of government public debt and deficit as of 2020 representing a credit strength supported by economic recovery and increasing inflation along with the primary budget deficit.
Fiscal momentum has been further boosted by previous significant improvements in the public debt structure.
Finally, structural reform policies have significantly reduced non-performing loan ratios (NPL) and strengthened the stability of the banking system, while policies have been launched to stimulate private sector investment, easing bottlenecks associated with the weakness of the Greek banking system.
the home Growth is estimated at 1.3% for 2023 and 2.0% for 2024Yet 8.4% in 2021 is estimated Growth will be 4.9% in 2022.
However, Greece’s creditworthiness is still in jeopardy. The first factor in particular is government debt, which presents continued weakness as markets reassess the risks associated with heavily indebted sovereign borrowers in the eurozone amid rising inflation and interest rate hikes by central banks. In addition, the gradual weakening of the robust debt structure, with rising refinancing costs, gradual shift from public to private ownership of debt and shorter maturities for new debt, reflects a credit challenge.
Second, weaknesses in the banking sector associated with lower capital adequacy ratios and higher non-performing loans compared to the eurozone averages reflect weak credit.
Finally, structural economic weaknesses represented by moderate growth potential in the medium term, high unemployment, limited economic diversification, and labor market difficulties limit the ratings.
Factors that could influence future ratings are in opposite directions
Long-term ratings may be upgraded one notch to investment grade if, individually or collectively:
1) Maintaining European support for Greece reinforces the case for the enhanced permanence of European institutional support for Greek debt markets and debt sustainability after the upcoming elections and post-coronavirus crisis.
2) Nominal growth and fiscal consolidation maintain a strong downward trend in public debt.
3) Banking sector risks are further reduced, which enhances the supply of credit to the private sector, and/or
4) Economic and external structural imbalances are limited, which increases growth dynamics in the medium term, and enhances macroeconomic sustainability.
Conversely, the outlook can be adjusted to ‘stable’ from ‘positive’ if individually or collectively:
1) The euro system’s support for Greek debt is limited or proving ineffective.
2) Fiscal policies remain loose for a longer period of time or a more severe recession occurs, impeding or reversing the current trajectory of reducing the government debt ratio.
3) Risks in the banking sector are increasing again and/or
4) Weak commitment to reforms, as happened after the 2023 elections, which reduces the prospects for reducing macroeconomic imbalances and undermining potential European support.
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