German ratings agency ‘upgrades’ Greece

Greece just got an ‘upgrade’ on Monday on its long-term foreign- and local-currency issuer ratings to BB from BB-, with a Positive Outlook, courtesy of a German ratings agency.

The German-based rating agency Scope Ratings GmbH made the announcement and also affirmed Greece’s short-term issuer rating at S-3 in both local and foreign currency, with a Stable Outlook.

Scope Ratings GmbH noting the main factors driving their ratings assessment on Greece as follows:

"(1) improved medium-term debt sustainability, backed by a track record of sustained fiscal discipline, a substantial cash buffer and a more robust debt profile as a result of Greece’s active debt management, which has also benefitted from debt relief measures coordinated via its multilateral lenders and more favourable financing rates; and (2) Greece’s improved political stability and reform continuity following the formation of a single party majority government after national elections held in July 2019. The new government led by Prime Minister Kyriakos Mitsotakis has prioritised a number of structural and business-friendly reforms aimed at addressing significant structural economic bottlenecks and attracting investment. Under Scope’s sovereign rating methodology, the upgrade reflects improvements in the ‘domestic economic risk’ and ‘public finance risk’ categories of Scope’s assessment."

The affirmation of the Positive Outlook, the announcement added, reflects an expectation of:

1. an acceleration in the reduction of a very high ratio of non-performing loans (NPLs) in Greek banks via envisaged portfolio sales and/or a carve-out mechanism, which will strengthen Greek banks’ ability to finance investment and support the real economy;
2. a strengthened credibility of economic policy through continuation of the implementation of business-friendly structural reforms and the speeding up of privatisations, which should increase investor confidence and the growth prospects of the Greek economy;
3. compliance with budgetary targets as agreed with official lenders given the government’s commitment to fiscal discipline; and
4. political stability over the coming years, given the stable parliamentary majority of the new Greek government, reducing the risk of policy reversals in the context of continued surveillance from multilateral creditors, whose period reviews remain a precondition for the activation of medium-term debt relief measures.

According to Scope Ratings GmbH, these factors "materially improve long-term macroeconomic sustainability and improve the real economy’s access to required liquidity, thus increasing consumer and business confidence and strengthening Greek borrower’s abilities to handle debt burdens."