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S&P Affirms Greek Credit Rating as B-/B With A Stable Outlook

S&P Affirms Greek Credit Rating as B-/B With A Stable Outlook

Daniel Dubrovsky, Contributing Senior Strategist


Talking Points:

  • S&P affirmed Greece’s credit ratings at B-/B and gave it a stableoutlook
  • The country is seen fulfilling its third economic adjustment program but with some lag
  • S&P sees the economy growing but with some fiscal allocation issues developing

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Global credit rating agency Standard & Poor’s affirmed Greece’s short and long term foreign and local currency sovereign credit ratings at B-/B. The S&P also set a ‘stable’ outlook while mentioning risks to the assessment over the next 12 months as balanced.

The group noted that the Greek government is meeting the formal terms of the third financial support program which amounts to 86 billion Euros. While it anticipates that the country will continue to fulfill most of the current program’s conditions, there is anticipation for some considerable lags down the road.

The organization sees Greece’s economy growing on average 3 percent from 2017 to 2020, though that would still leave it about 15 percent smaller than its size in 2008. Economic growth over this time period is to be supported by tourism and a gradually improving jobs market. There was a mild statistical recovery in the second half of 2016 according to its measurements.

Despite the positive view of growth, S&P highlighted the economy remains fragile and its banking sector distressed. A big concern was about the pension system being operated at an unsustainably high deficit of close to 11 percent of GDP. This large amount of spending was reported as a major opportunity cost for fiscal resources that could have been diverted to health, education and the unemployed.

Additional comments from S&P:

  • IMF’s participation in the program is yet to be determined
  • Inclusion of Greek government securities in the ECB’s asset purchase program yet a certainty
  • Sees Greece’s investment amount below 10% of GDP in 2017
  • Outlook for investment remains constrained
  • The banking sector will remain impaired over the forecast horizon
  • Greece has the second highest debt-to-GDP ratio of all the sovereigns S&P rates coming in at an estimate 180%
  • Greece’s protracted economic crisis has weakened the country’s administrative capacity

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