Credit rating agency Standard & Poor’s gave Greek bonds an investment grade late last night, upgrading them to BBB- from BB+ with a stable outlook.

It is the second of the four major rating agencies taken into account by the European Central Bank to make this move, as it was preceded on September 8 by the Canadian agency DBRS.

The announcement of the rating agency

In its announcement, S&P speaks of improvement of Greece’s public finances thanks to fiscal adjustment efforts, while noting that since the 2009-2015 debt crisis significant progress has been made in addressing Greece’s economic and fiscal imbalances.

“We expect that additional structural economic and fiscal reforms, combined with large resources from the EU, will support strong economic growth in the period 2023-2026 and consolidate the ongoing reduction of public debt,” the house notes.

The stable outlook, according to S&P, reflects the balance between risks from the external environment that could affect the open Greek economy, with the house’s expectations that targets for permanent primary surpluses will continue to guide public debt reduction.

The significant fiscal adjustment, notes S&P, put Greece’s fiscal path on a strongly improved trajectory.

Bolstered by the very rapid economic recovery, the Greek government was able to outperform against fiscal targets despite a gradual increase in social transfers. “We expect the government to achieve a primary surplus of at least 1.2% of GDP this year, beating its target by 0.7% despite significant fiscal costs associated with recent floods and fires. We predict average primary fiscal surplus of 2.3% of GDP in the period 2024-2026. In our view, political pressures are likely to complicate the government’s ability to maintain large fiscal surpluses over the medium to long term, and this could slow progress on debt reduction in the later years of our forecast horizon and beyond,” notes house.

For the parliamentary electionsS&P says they have empowered the ND government and that the clear mandate and avoidance of a potentially unstable coalition allows the government to continue to build on previous reform efforts.

“The election result appears broadly to be a mandate for policy continuity and we expect the government to push forward with its reform agenda, which includes further addressing the still large public debt (eg by further closing VAT gap), securing the stability of the banking system and structural reforms in the justice and health care systems, among other efforts to strengthen Greece’s competitiveness”.

S&P estimates that government net debt will fall to around 146% of GDP by the end of the year, which would be a significant improvement from the high of 189% of GDP in 2020. This to some extent also reflects the “dividend from inflation’, but also due to rapid post-pandemic growth and strong fiscal adjustment. “Although debt remains high, its profile is among the most favorable of all the countries we assess” as its weighted average duration was 19.7 years at the end of June 2023 and its servicing interest costs correspond to a relatively modest 5.7% of estimated general government revenue, he notes.

Like all small open economies, “Greece remains exposed to changing winds in the global economy, including the risks of a possible economic slowdown that would affect the important outbound sectors of tourism or shipping, or of a new sudden spike in energy prices . These developments could slow down the improved dynamics of Greece’s credit indices. Our ratings continue to be constrained by high public debt and a weak external position.”

The American house estimates that Greek GDP will grow by 2.5% this year, significantly more than the other Eurozone countries, supported mainly by investment and tourism.
The recovery from the debt crisis and then the pandemic forged the initial recovery in investment and confidence in the economy. The rapid digitization of public services has brought significant progress in reducing tax evasion and unlocking other positive outcomes in the public sector.

“The strong performance of tourism, shipping and manufacturing in recent years, along with progress by banks in selling and liquidating their non-performing exposures, prompted additional investment.”

The house does not consider that climate phenomena, such as the fires and floods that hit Greece this year, will significantly affect the development of the Greek economy, due to their limited local and temporal nature.

For the period 2024-2026, it predicts an average growth rate of 2.6%.

Regarding the banks, he notes that “given their very strong performance” in 2023, along with the broader clear improvements in their asset quality, “we view the plans” to sell the HFSF’s stake in them by 2025 “as broadly credible.” ».

The significance of the S&P upgrade

Greece has already ensured, with the upgrade from DBRS, the inclusion of its bonds in the ECB’s bond purchase programs (QE), without the need for exceptional approval. The upgrade by S&P paves the way for Greek bonds to enter the radar of large institutional investors, such as pension funds and mutual funds.

These institutional investors buy securities that have an investment grade rating from two of the three major US rating agencies – S&P, Fitch and Moody’s.
Therefore, with a possible upgrade from Fitch on December 1st, which currently rates Greece one step below investment grade, Greek government bonds will acquire a much wider base than the current long-term investor base.

As far as Moody’s is concerned, after the double upgrade of Greece on September 15th, it is likely that it will also give the investment grade in its next assessment.

Satisfaction to the government

K. Mitsotakis: We are proud of the recognition of what our country has achieved

Proud of the recognition of what our country has achieved, says Prime Minister Kyriakos Mitsotakis on the upgrade of the Greek economy by the rating agency Standard & Poor’s.

With his post on social networks in English, the Prime Minister states:

“An important milestone today, as S&P Global Ratings upgrades Greece to investment grade. Proud of the recognition of what our country has achieved. We are determined to continue our reform agenda, a path that attracts investment, creates jobs and achieves inclusive growth.”

K. Hatzidakis: The country is facing a historic window of opportunity – S&P’s report is more than positive

The S&P report is more than positive and it is our patriotic duty to move forward with seriousness, commented the Minister of National Economy and Finance Kostis Hatzidakis, regarding the upgrade of the Greek economy to the investment grade by the specific rating agency. And he pointed out that “the country is facing a historic window of opportunity as they combine the right mix of economic policy with political stability. And it is our patriotic duty to take advantage of the opportunity and move forward for the benefit of all Greeks, especially the weakest”. Adding that “the country is and will remain oriented towards the policy of fiscal seriousness”.

Specifically, the minister stated the following:

“S&P is the fourth rating agency in a row and the second one recognized by the ECB to assign an investment grade to Greece in recent months after 13 years. The S&P report itself is more than positive and so eloquent that I personally have nothing to add. Let those who constantly try to underestimate the efforts and results of government policy in the economy read it.

The country is facing a historic window of opportunity as the right mix of economic policy and political stability come together. And it is our patriotic duty to take advantage of the opportunity and move forward for the benefit of all Greeks, especially the weakest.

As I recently emphasized at ECOFIN, Greece is and will remain oriented to the policy of fiscal seriousness, regardless of the outcome of the negotiations that are underway in the European Union for the new fiscal stability rules. A policy that is the only stable basis for maintaining the country’s credibility in international markets, attracting investment and sustainable development”.

As reported by the ministry, S&P underlines in its relevant report that it assigns Greece the investment grade because the following factors are present:

The significant fiscal consolidation that has been achieved, which is supported by a rapid recovery of the economy and results in the Greek government exceeding the fiscal targets it sets itself.

The clear mandate that New Democracy received in the elections, which allows the government to continue with reforms.

The continued reduction of public debt, which according to S&P is expected to reach 145% of GDP in 2023 and 138% in 2026, compared to 189% of GDP in 2020. The house also notes that while debt remains high, “the its profile is one of the most favorable of all the states we assess as the weighted average duration of central government debt was 17.2 years at the end of June 2023 and interest payments represent a relatively low (5.6%) percentage of revenue of the general government”.

As noted in the report: “The recovery from the debt crisis and subsequently from the COVID-19 pandemic has boosted investment growth and confidence in the economy. The rapid digitization of public services has led to significant progress in reducing tax evasion and improving public sector efficiency. The strong performance of tourism, shipping and manufacturing in recent years, along with progress in the sale and resolution of non-performing loans, has prompted additional investment.”

It still has the highest growth rate compared to other EU countries, despite the effects of natural disasters. And this is due to the record-breaking performance in tourism, the increase in investment, the decrease in unemployment and the improvement in the financing of the economy. Also, that inflation is starting to normalize and is moving towards the ECB’s target of levels below 2%.