Credit rating agency S&P has confirmed Greece’s credit rating at BB+ and upgraded its outlook to positive from stable.

S&P says Greece’s structural reforms and economic resilience, as well as support from the EU, have improved public finances and financial sector stability.

“Following the fastest fiscal adjustment in the EU in 2022, Greece’s primary balance has returned to surplus and we expect further fiscal improvements in the coming years,” he noted in his statement.

Investment rose to 21% of GDP at the end of 2022, up 9 percentage points over the past three years. “We expect this trend to continue, anchored in the €30.5 billion of Recovery and Resilience Fund resources available for Greece… Thus, we have revised the outlook for Greece to positive from stable, confirming the BB+/B rating “, notes the house.

The positive outlook, notes the house, “reflects our view that Greece will build on its recent strong performance in implementing structural reforms. In addition, the government closed the fiscal deficit faster than expected, with improvements that we consider broadly sustainable.”

The house notes that it could upgrade Greece over the next 12 months (note: to investment grade), “if fiscal adjustment is sustained over our forecast period to 2026…Upgrades would also depend on the maintenance of the next government of the pace of structural reforms”.

S&P notes that the Greek economy has proved resilient despite difficult macroeconomic conditions, noting that GDP grew 5.9% in 2022, surpassing pre-pandemic levels, despite the energy shock for Greece and its trading partners. He also notes that exports as a percentage of GDP have grown by 20 percentage points over the past decade.

With the carry over effect into 2023, the strong investment outlook and strong tourism figures, “we see growth reaching at least 2.5% this year and then averaging marginally below 3% in the period 2024-2026”, it states.

It also notes that in 2022, for the first time since 2010, bank lending to the private sector was positive. “Efforts to clean up the system’s balance sheets have yielded results, with non-performing loans (NPLs) falling to 8.2% of total loans in December 2022, which while still high, is well below a high of 49.2% in June 2017.”

While concerns remain, the house adds, about the quality of bank capital (deferred tax credits still account for about two-thirds of regulatory capital), the financial sector appears more stable than in recent years.

Fiscal reforms are also beginning to bear fruit, S&P says. “Despite the significant support offered by the government in 2022 with energy subsidies, we estimate that there was a general government primary surplus in 2022, which signals a significant adjustment.

Greece’s ratings continue to be constrained by high external imbalances, according to S&P. The current account deficit rose to 9.7% of GDP in 2022 following a sudden and significant increase in imported hydrocarbon prices. However, he adds, the increase in the deficit is also due to imports of capital goods due to increased investment activity. It predicts, however, that the reduction in energy prices combined with the further increase in tourism will limit the current account deficit in the coming years.

For public debt, the house says that although it is high in nominal terms, its profile in terms of repayment period and interest expense remains among the most favorable globally. Net debt peaked at 188% of GDP in 2020 “and we estimate it will decline to 145% of GDP at the end of 2023. Greece stands out among EU countries as having the fastest decline in its debt ratio in 2022. We expect further reductions in the period 2024-2026, in line with strong economic growth and improved fiscal performance.”