Greece’s economy received a substantial boost late on Friday after Standard & Poor’s upgraded its rating to investment grade for the first time since the country’s debt crisis in 2010.
Standard & Poor’s, became the first among the “big three” rating agencies to raise the country’s local and foreign currency long-term issuer ratings to ‘BBB-/A-3’, with a stable outlook, citing a stronger budgetary position.
The other two agencies, Fitch and Moody’s, rate the country one notch below investment grade. DBRS Morningstar upgraded Greece’s rating to investment grade BBB (low) last month.
The one-notch upgrade from BB+ to BBB- is expected to significantly boost market confidence in the Greek economy, attracting investment and lowering borrowing costs.
Standard & Poor’s rationale for giving Greece investment grade
Explaining its decision, Standard & Poor’s said that “significant budgetary consolidation has placed Greece’s fiscal trajectory onto a firmly improving track.”
Supported by a very rapid economic recovery, the Greek government has been able to regularly outperform its own budgetary targets despite gradually increasing social transfers, it adds.
“We expect the government will achieve a primary surplus of at least 1.2% of GDP this year, exceeding its 0.7% target, even considering the material budgetary cost associated with the recent wildfires and floods,” it was said.
Securing investment grade was a key target for Prime Minister Kyriakos Mitsotakis, who won a second term in office in a landslide election victory in June.
On the recent election Standard & Poor’s says that “the clear mandate and the avoidance of a potentially unstable coalition allows the government to continue to build upon past reform efforts. The election outcome looks broadly to be a mandate for policy continuity, and we expect the government to advance its reform agenda.”
Speaking hours before the decision of the ratings agency was announced Mitsotakis said that “Greece is currently a positive surprise in an environment of much bad news, having set in motion a very dynamic developmental course, with its public finances absolutely in good order.”
The ratings agency estimates the Greek net government debt stock will fall to about 146 percent of GDP by year-end, which would represent a “marked improvement from the peak of 189 percent of GDP in 2020.”
Greece hails upgrade
Finance Minister Kostis Hatzidakis hailed the S&P upgrade late Friday while pledging to maintain prudent budgetary policies.
“The country faces a historic window of opportunity through a combination of the right economic policy mixture with political stability,” he said.
Last month rating agency DBRS Morningstar lifted Greece’s credit rating to investment-grade status to triple B.
DBRS said the upgrade reflected its view that, in line with Greece’s “impressive” record, “the Greek authorities will remain committed to fiscal responsibility, ensuring that the public debt ratio stays on a downward trend.” DBRS added that it expected Greece’s primary fiscal balance to reach a surplus of 1.1 percent this year and 2.1 percent in 2024.
The Financial Times (FT) said that although the agency is not one of the “big three,” its ratings are recognized by the European Central Bank, giving its opinions outsize clout within the euro area.