Greece’s compliance with the adjustment programme, a structural budgetary improvement, greater economic resilience, and a more predictable policy environment, along with the prospect for further debt relief, enhance the country’s credit outlook.
Greece’s improved financial resilience is reflected in the reduction of the country’s interest burden, with payments down to 6.3% of revenues last year compared with 16.4% in 2011, and the lengthening in the weighted-average maturity of its debt at 18.1 years in Q1 2018 compared with 6.3 years as of 2011. Improvements in the structure of Greek debt reduce risks tied to the still elevated level of the public debt stock at 178.6% of GDP in 2017, the second highest among sovereigns rated by Scope (after Japan).
“Refinancing risks are now more manageable, reflected in the need to refinance around 20% of debt outstanding at the end of 2017 over the coming five years,” says Jakob Suwalski, lead analyst on Greece at Scope Ratings.
In addition, the continuous build-up of a meaningful cash buffer estimated to total about 10% of GDP by the end of the programme in August will further support Greece’s funding resilience, helping counteract future periods of market stress.
Greece’s improved outlook stems also from prospects for further debt relief measures once Greece exits the current programme. “Further contingent debt relief measures, as indicated by official creditors, would improve confidence in the long-term sustainability of Greek public debt”, says Suwalski.
One credit-positive example is the Eurogroup’s ex-ante voluntary commitment to potentially re-profile Greece’s repayments to the EFSF, the largest creditor holding about 40% of the country’s debt. This could be achieved with a yet-to-be defined growth adjustment mechanism, possibly linking future repayments to Greece’s economic performance.
“The potential consequences of the EFSF agreeing to be repaid after, or specifically, later than other creditors, reduces the risk of a credit event, as it would provide for a degree of systematic relief in times of stress,” adds Suwalski.
Scope will continue to monitor these developments, and in particular, the final agreement between the Greek government and its official creditors, including post-programme monitoring mechanisms, reform incentives and long-term fiscal discipline.
Greece’s improved fiscal and economic position alongside reduced political uncertainties, underpinned Scope’s 18 May decision to upgrade the country’s rating to ‘B+’ and change the Outlook to ‘Positive’ from ‘Stable’. However, Scope underlines that Greek debt sustainability remains subject to question in the long-run. Scope also identifies weak prospects for growth, constrained by high non-performing loans as well as a low level of investments and savings, as an additional constraint.
Please click here for Greece’s rating report published on 18 May, and here for Scope’s report on the impact of debt relief measures on Greece’s creditworthiness published on 30 April.