Fitch: Greece moves closer to investment grade after primary surplus

Fitch: Greece moves closer to investment grade after primary surplus

The strong improvement in Greece’s public finances is evidenced by the stability programme, which provides for a further significant reduction in its debt, according to the rating agency Fitch in its report. And in fact, about a month before his new assessment on June 9, when he “sees” Greece approaching investment grade, after having generated a primary surplus.

“The program projections, although some of them turn out to be optimistic, reinforce our view that the debt-to-GDP ratio will continue to decline over the medium term,” he notes.


The stability programme, submitted to the European Commission in April, forecasts real GDP growth this year at a rate of 2.3%, down from 5.9% last year, but higher than the rate of 0.8% forecast by Fitch for the euro zone in 2023.

It also forecasts a primary surplus of 1.1% of GDP this year and an overall budget balance deficit, which includes interest on public debt service, at 1.8% of GDP against a primary surplus of 0.1%. % of GDP and a deficit of 2 . 3% in 2022, respectively.

Sustained economic growth, boosted by investment and exports, will help maintain primary surpluses, which will reach 2.5% of GDP in 2026, according to the plan.

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Fitch notes that its January upgrade of Greece’s credit rating to BB+ with a stable outlook, one notch below investment grade, reflected its expectations for better earnings and deficit and debt projections in 2022- 2024, thanks to stronger nominal GDP growth, an “under-execution” budget and a favorable debt service structure.

Financial results

He points out that the budgetary results for 2022 recorded in the stability program were even better than Fitch’s estimates, with the overall and primary balance exceeding its expectations recorded in the Sovereign Data Comparator in March by more than a percentage point.

Despite the better starting point, the stability program forecast could turn out to be optimistic, the Chamber notes, in part because the forecast for real GDP growth of 2.3% comes mainly from the expected increase in the investment and the 1.8 percentage point contribution to growth forecast for 2023.

Specifically, investment as a percentage of GDP is expected to increase to 15.3% this year from 13.7% last year, assuming the effective implementation of the Greek recovery and resilience plan.

The Political Cycle and the Recovery Fund

However, according to Fitch, “the prolonged political cycle could delay payments from the Recovery and Resilience Fund”, which would have a negative impact on growth.

Polls, he added, give New Democracy a solid lead over SYRIZA in the May 21 elections, but show that no party will have an absolute majority, making second elections possible.

He also notes that the more constructive relations between Greek governments and international creditors have been supported by a more stable political framework, which has contributed to the upward momentum in Greek debt. “Our base case is that national policies will remain broadly stable after the 2023 election,” Fitch says, but notes that the election inevitably means some degree of uncertainty for fiscal policy.

The forecasts

Fitch reports that the stability program forecast was made on the assumption of no policy change and does not include fiscal measures announced by the government before the election of 0.1% of GDP for 2024 and 0, 3% for 2025 and 2026.

More generally, pursuing spending cuts could prove more difficult after temporary pandemic support measures are fully withdrawn and revenue growth slows significantly, he notes.

“As in other countries, the fiscal advantage of inflation-boosting revenues will not last, which the stability program acknowledges as it projects revenues to fall from 50.2% of GDP in 2022 to 47.1 % in 2023,” the report notes.


However, he adds, the stability program underlines the authorities’ general commitment to fiscal prudence.

He also notes that any lower-than-expected primary surplus would not derail debt reduction.

Fitch expects the debt ratio to decline at a slower pace over the medium term, and is unlikely to fall to 135.2% of GDP in 2026 as expected.

“In our last assessment, we highlighted that confidence in the continuation of a steady downward trajectory of public debt relative to GDP over the medium term” is a key parameter of positive assessments, the report concludes.

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