Declining revised Credit rating agency Fitch his forecasts for the financial needs of Greece for the next four years, in his commentary for Greece.
“We had previously stressed that the gross borrowing needs (GFNs) of the Greek State will peak in 2023 and will remain below 15% of GDP. “Our revised forecasts now show lower GFNs over the next four years (cumulatively 4.5% of GDP),” Fitch said.
The house adds that the revised forecast also reflects the repayments of the remaining IMF loans as well as the prepayments of 2022 and 2023 installments for bilateral loans that Greece had taken from Eurozone countries with the first memorandum (Greek Loan Facility) amounting to 3 , 8% of projected GDP.
The house notes that the upgrade of Greece’s debt outlook to positive from stable last month reflects the stronger growth of the economy and the reduction of its budget deficit, which support a faster-than-expected reduction of public debt, amid rising but still historically low borrowing costs. It reminds in this regard that the average yield of the 10-year Greek government bond in the period 2015-2019 was 6.25%.
Government debt has risen sharply due to the Covid-19 pandemic, Fitch notes, and as a percentage of GDP is the third highest among the countries it estimates and about 3.5 times higher than the average of countries rated “BB” . He stresses, however, that there are factors that limit its impact and support its sustainability. Specifically, he mentions the important cash cushion of Greece, the fact that for most of the debt concessions have been made which means that its service cost is low and its repayment schedule is manageable as well as that its average duration is 20.5 years, one of the largest among all countries.
This, he adds, will reduce the impact of rising bond yields. Interest expenses paid by Greece as a percentage of public revenue are much lower than the average of countries with a “BB” debt and slightly lower than the average of countries with a “BBB” credit rating.
“The inclusion of Greek bonds in the emergency bond market program due to the European Central Bank pandemic has been an important source of financial flexibility,” Fitch notes.
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