Fitch upgrades Greek credit rating to B-

Tuesday 14 May 2013 18.14
Fitch said the fear of Greece's euro zone exit had receded
Fitch said the fear of Greece's euro zone exit had receded

The Credit ratings agency Fitch has upgraded Greek sovereign debt by one notch, from CCC - or default status - to B-, which is the lowest rank of "highly speculative" grade on the Fitch ratings scale, otherwise known as "junk".

Ratings agencies normally upgrade a bond from the CCC or imminent default status some months after a default has taken place.

Fitch has assigned the new B- rating a stable outlook, indicate another downgrade is unlikely within the next year.

The agency says the Greek economy is rebalancing, with clear progress made towards eliminating the fiscal and current account deficits.

It says the recent sovereign debt relief move organised by the Troika has lifted economic sentiment to a three year high, and the threat of euro zone exit has receded.

It says the debt restructuring should mean the debt to GDP ratio will peak at 180% of GDP over the next year, but the reduced interest rates and longer maturities that come with the restructuring should render sovereign debt service costs more secure than would appear from the size of the headline debt.

But sustainability is far from assured and depends on economic recovery and a sustained primary fiscal surplus.

The restructuring and debt buybacks have left the private sector with just 15% of Greece's debt, and in Fitch's view there is little to be gained financially from imposing another haircut on private debt holders.

It says barring a Greek exit from the Euro, official creditors – namely the Troika - would bear the brunt of any future default.

It says Greece's membership of the Euro has shielded it from balance of payments and exchange rate risks, and has "facilitated access to unprecedented financial assistance".

Fitch says the economic adjustment programme is broadly on track, with much greater political ownership of the programme than was evident with the previous government.

The upgrade assumes the current government will stay in power and continues to implement the Troika programme.

It forecasts a contraction of the Greek economy of 4.3% this year compared with a contraction of 6.4% last year, and foresees weak growth next year.

Fitch says bank recapitalisation is well advanced, and some €17 billion in term deposits have returned to Greek banks, but cautions that the Cyprus bail in could cause speculation among Greek businesses and depositors on how financing gaps could be filled if the Troika programme were to go off track.