Scope Ratings GmbH has announced an upgrade in Greece’s long-term issuer and senior unsecured debt ratings to BBB from BBB-, with a revised outlook from Positive to Stable. The short-term issuer ratings are affirmed at S-2, maintaining a Stable outlook in both local and foreign currencies.
Rationale Behind the Upgrade:
1. Reduction in Government Debt:
The upgrade reflects expectations of a continued decrease in Greece’s general government debt ratio over the coming years. This decline is attributed to favorable debt dynamics, stronger-than-expected primary fiscal surpluses, and a narrowing budget deficit. Greece’s public debt ratio has notably declined from its 2020 peak of 212.6% of GDP to an estimated 155.3% by the end of 2024, with forecasts suggesting further decreases to 145.0% by 2025 and 132.0% by 2029.
2. Banking System Resilience:
Another factor driving the upgrade is the improved stability of the Greek banking system. Significant progress has been made in reducing non-performing loans, which fell from 49.2% in 2017 to 6.4% by June 2024, partially through initiatives like the Hercules Asset Protection Scheme. Additionally, banks have seen improved profitability and strengthened capital positions.
3. Enhanced Macroeconomic Stability:
Greece has shown enhanced macroeconomic stability aided by sustained structural reforms and investments, particularly under the “Greece 2.0” Recovery and Resilience Plan. Despite traditional economic and demographic challenges, Greece’s economic growth potential has been slightly revised to 1.25% annually, supported by moderate inflation and improvements in the labor market.
Outlook and Risks:
Stable Outlook:
The stable outlook reflects confidence in Greece’s ability to sustain its fiscal discipline and debt reduction efforts, alongside the continuing resilience of its banking sector.
Potential Risks:
Downside risks to this outlook include potential economic downturns, unexpected inflation fluctuations, rising borrowing costs, and a weakening of the fiscal position. A stressed economic scenario could see an increase in the debt-to-GDP ratio.
Overall, the upgrade to BBB marks a positive shift in Greece’s creditworthiness, reflecting its progress in managing debt levels, enhancing banking stability, and achieving macroeconomic improvements.