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Fitch Affirms Greece at 'B-'; Outlook Stable
Mon Dec 2, 2013 11:37am EST
LONDON, December 02 (Fitch) Fitch Ratings has affirmed Greece's Long-term foreign and local currency Issuer Default Ratings (IDR) at 'B-'. The issue ratings on Greece's senior unsecured foreign and local currency bonds have also been affirmed at 'B-'.
The Outlooks on the Long-term IDRs are Stable. The Short-term foreign currency IDR has been affirmed at 'B' and the Country Ceiling upgraded to 'B+' from 'B'.
KEY RATING DRIVERS
The affirmation and Stable Outlooks reflect the following factors: Greece is on course to eliminate longstanding macroeconomic imbalances and there has been no repetition of the protracted delays in EU-IMF disbursements that marred previous years.
Fitch expects negotiations with the Troika (EU-IMF-ECB) on the fifth review of the Economic Adjustment Programme (EAP) to reach a satisfactory conclusion by year-end.
Near term, Greece is fully funded until February 2014. Fitch acknowledges that there are programme funding shortfalls of EUR11bn in 2014-15, but believes various options should be available to address these.
The Greek economy's ability to adjust and recover is crucial to the restoration of sovereign creditworthiness.
To date, adjustment has taken place chiefly through recession and unemployment.
Recovery still hangs in the balance. However, the rate of contraction of real GDP has slowed to 3% in 3Q from 5.6% y-o-y in 1Q, while unemployment appears to be levelling out, albeit at a record high of 27%. Fitch has revised its real GDP forecast for 2013 to negative 4% from negative 4.3%, leaving 2014 unchanged at 0.5%. Primary fiscal surpluses are in sight, holding out the prospect of a stabilisation in the public debt/GDP ratio. The draft 2014 budget estimates that Greece should realise a primary surplus of 0.4% of GDP in 2013 and a headline deficit of 2.2% of GDP, down from 6.1% in 2012, excluding bank recapitalisation costs.
The degree of primary fiscal adjustment - around 11% of GDP in 2009-13, excluding bank recapitalisation costs - has been remarkable, while Fitch expects gross general government debt (GGGD) to stabilise at 176% of GDP in 2014. Greece recorded its first ever current account surplus in 1Q-3Q13. This was mostly due to severe import compression and debt relief. However, it also reflects a modest recovery of merchandise exports, buoyant tourism receipts and a significant step up in net EU transfers.
Surpluses are not sustainable over the long term. However, the stage is set for an upturn in receipts from merchandise exports and shipping on the back of appreciable gains in external competitiveness, incipient recovery in the eurozone and stronger world trade.
Sustaining economic recovery will depend upon the success of structural reforms. Greece has pushed ahead with labour market reform. Progress has also been made restoring financial sector stability, with all four core banks now fully recapitalised. However, other aspects of structural reform have encountered significant resistance from vested interests, holding back productivity gains and forestalling stronger FDI flows. Political risk remains significant.
The current administration has displayed much greater ownership of the EAP, but reform fatigue is taking its toll and defections have reduced its majority in parliament to just four MPs.
An early general election, while not Fitch's base case, could produce an anti-austerity, anti-EU administration. However, Fitch notes that Syriza, the main opposition party, has stepped back from its extreme policy stance of euro exit.
Greece's sovereign ratings are underpinned by its still high income per capita, which far exceeds 'B' and 'BB' medians, its superior measures of governance on most counts and membership of the eurozone, which shields it from balance of payments and exchange rate risks and has facilitated access to unprecedented financial assistance. The upgrade of the Country Ceiling reflects the receding risk of Greek exit from the eurozone, coupled with the demonstrable external market access of non-sovereign entities.
RATING SENSITIVITIES
The Stable Outlook reflects Fitch's assessment that upside and downside risks to the rating are more broadly balanced than in the recent past. Nonetheless, the following risk factors individually, or collectively, could trigger a negative rating action:
- Failure of the economy to recover, leading to the re-emergence of renewed funding gaps over and above identified shortfalls.
- Renewed political and social instability, leading to early elections and an unravelling of the EAP, would intensify the risks of Greek exit from the eurozone and widespread default
- sovereign and private sector. Conversely, the following factors, individually or collectively, could result in a positive rating action:
- Sustained economic recovery founded on solid implementation of the EU-IMF programme and leading to GDP growth consistent with debt sustainability.
- Further fiscal consolidation, coupled with a renewed push on structural reforms consistent with a sustained fall in the public debt/GDP ratio and the restoration of market access.
KEY ASSUMPTIONS
The ratings and Outlooks are sensitive to a number of assumptions:
Political and social stability are maintained and the current administration remains in place. Broad compliance with the EAP.
The sustainability of Greece's public finances and its continued membership of the eurozone depend upon the implementation of structural and fiscal reforms and their effectiveness in laying the foundations for a sustained economic recovery.
Fitch assumes that Greek banks make no further material demands on the sovereign balance sheet beyond the EUR50bn already allocated for recapitalisation; EUR38bn has been disbursed to date.
Fitch assumes that GGGD/GDP will stabilise at 176% in 2014, subsiding gradually thereafter.
However, these projections are sensitive to assumptions about growth, the attainment of primary surpluses and the realisation of privatisation revenues.
Fitch assumes that Greece remains a member of the eurozone and does not seek to impose capital controls in the face of renewed strains on sovereign creditworthiness.
In the event of a Greek exit from EMU, Fitch would treat the forcible redenomination of sovereign and private sector debt as a default event in line with its Distressed Debt Exchange rating criteria.
Fitch assumes that the risk of fragmentation of the eurozone remains low. Contact: Primary Analyst Paul Rawkins Senior Director +44 20 3530 1046 Fitch Ratings Limited 30 North Colonnade London E14 5GN Secondary Analyst Douglas Renwick Senior Director +44 20 3530 1045 Committee Chairperson Tony Stringer Managing Director +44 20 3530 1219 Media Relations: Peter Fitzpatrick, London, Tel: +44 20 3530 1103, Email: [email protected]. Additional information is available on Fitch Ratings - Global rating agency dedicated to providing value beyond the rating through objective and balanced credit opinions, research and data. Applicable criteria, 'Sovereign Rating Criteria' dated 13 August 2012 and 'Country Ceilings' dated 09 August 2013, are available at Fitch Ratings - Global rating agency dedicated to providing value beyond the rating through objective and balanced credit opinions, research and data..
Mon Dec 2, 2013 11:37am EST
LONDON, December 02 (Fitch) Fitch Ratings has affirmed Greece's Long-term foreign and local currency Issuer Default Ratings (IDR) at 'B-'. The issue ratings on Greece's senior unsecured foreign and local currency bonds have also been affirmed at 'B-'.
The Outlooks on the Long-term IDRs are Stable. The Short-term foreign currency IDR has been affirmed at 'B' and the Country Ceiling upgraded to 'B+' from 'B'.
KEY RATING DRIVERS
The affirmation and Stable Outlooks reflect the following factors: Greece is on course to eliminate longstanding macroeconomic imbalances and there has been no repetition of the protracted delays in EU-IMF disbursements that marred previous years.
Fitch expects negotiations with the Troika (EU-IMF-ECB) on the fifth review of the Economic Adjustment Programme (EAP) to reach a satisfactory conclusion by year-end.
Near term, Greece is fully funded until February 2014. Fitch acknowledges that there are programme funding shortfalls of EUR11bn in 2014-15, but believes various options should be available to address these.
The Greek economy's ability to adjust and recover is crucial to the restoration of sovereign creditworthiness.
To date, adjustment has taken place chiefly through recession and unemployment.
Recovery still hangs in the balance. However, the rate of contraction of real GDP has slowed to 3% in 3Q from 5.6% y-o-y in 1Q, while unemployment appears to be levelling out, albeit at a record high of 27%. Fitch has revised its real GDP forecast for 2013 to negative 4% from negative 4.3%, leaving 2014 unchanged at 0.5%. Primary fiscal surpluses are in sight, holding out the prospect of a stabilisation in the public debt/GDP ratio. The draft 2014 budget estimates that Greece should realise a primary surplus of 0.4% of GDP in 2013 and a headline deficit of 2.2% of GDP, down from 6.1% in 2012, excluding bank recapitalisation costs.
The degree of primary fiscal adjustment - around 11% of GDP in 2009-13, excluding bank recapitalisation costs - has been remarkable, while Fitch expects gross general government debt (GGGD) to stabilise at 176% of GDP in 2014. Greece recorded its first ever current account surplus in 1Q-3Q13. This was mostly due to severe import compression and debt relief. However, it also reflects a modest recovery of merchandise exports, buoyant tourism receipts and a significant step up in net EU transfers.
Surpluses are not sustainable over the long term. However, the stage is set for an upturn in receipts from merchandise exports and shipping on the back of appreciable gains in external competitiveness, incipient recovery in the eurozone and stronger world trade.
Sustaining economic recovery will depend upon the success of structural reforms. Greece has pushed ahead with labour market reform. Progress has also been made restoring financial sector stability, with all four core banks now fully recapitalised. However, other aspects of structural reform have encountered significant resistance from vested interests, holding back productivity gains and forestalling stronger FDI flows. Political risk remains significant.
The current administration has displayed much greater ownership of the EAP, but reform fatigue is taking its toll and defections have reduced its majority in parliament to just four MPs.
An early general election, while not Fitch's base case, could produce an anti-austerity, anti-EU administration. However, Fitch notes that Syriza, the main opposition party, has stepped back from its extreme policy stance of euro exit.
Greece's sovereign ratings are underpinned by its still high income per capita, which far exceeds 'B' and 'BB' medians, its superior measures of governance on most counts and membership of the eurozone, which shields it from balance of payments and exchange rate risks and has facilitated access to unprecedented financial assistance. The upgrade of the Country Ceiling reflects the receding risk of Greek exit from the eurozone, coupled with the demonstrable external market access of non-sovereign entities.
RATING SENSITIVITIES
The Stable Outlook reflects Fitch's assessment that upside and downside risks to the rating are more broadly balanced than in the recent past. Nonetheless, the following risk factors individually, or collectively, could trigger a negative rating action:
- Failure of the economy to recover, leading to the re-emergence of renewed funding gaps over and above identified shortfalls.
- Renewed political and social instability, leading to early elections and an unravelling of the EAP, would intensify the risks of Greek exit from the eurozone and widespread default
- sovereign and private sector. Conversely, the following factors, individually or collectively, could result in a positive rating action:
- Sustained economic recovery founded on solid implementation of the EU-IMF programme and leading to GDP growth consistent with debt sustainability.
- Further fiscal consolidation, coupled with a renewed push on structural reforms consistent with a sustained fall in the public debt/GDP ratio and the restoration of market access.
KEY ASSUMPTIONS
The ratings and Outlooks are sensitive to a number of assumptions:
Political and social stability are maintained and the current administration remains in place. Broad compliance with the EAP.
The sustainability of Greece's public finances and its continued membership of the eurozone depend upon the implementation of structural and fiscal reforms and their effectiveness in laying the foundations for a sustained economic recovery.
Fitch assumes that Greek banks make no further material demands on the sovereign balance sheet beyond the EUR50bn already allocated for recapitalisation; EUR38bn has been disbursed to date.
Fitch assumes that GGGD/GDP will stabilise at 176% in 2014, subsiding gradually thereafter.
However, these projections are sensitive to assumptions about growth, the attainment of primary surpluses and the realisation of privatisation revenues.
Fitch assumes that Greece remains a member of the eurozone and does not seek to impose capital controls in the face of renewed strains on sovereign creditworthiness.
In the event of a Greek exit from EMU, Fitch would treat the forcible redenomination of sovereign and private sector debt as a default event in line with its Distressed Debt Exchange rating criteria.
Fitch assumes that the risk of fragmentation of the eurozone remains low. Contact: Primary Analyst Paul Rawkins Senior Director +44 20 3530 1046 Fitch Ratings Limited 30 North Colonnade London E14 5GN Secondary Analyst Douglas Renwick Senior Director +44 20 3530 1045 Committee Chairperson Tony Stringer Managing Director +44 20 3530 1219 Media Relations: Peter Fitzpatrick, London, Tel: +44 20 3530 1103, Email: [email protected]. Additional information is available on Fitch Ratings - Global rating agency dedicated to providing value beyond the rating through objective and balanced credit opinions, research and data. Applicable criteria, 'Sovereign Rating Criteria' dated 13 August 2012 and 'Country Ceilings' dated 09 August 2013, are available at Fitch Ratings - Global rating agency dedicated to providing value beyond the rating through objective and balanced credit opinions, research and data..
) da negativo a stabile.