S&P Global Ratings upgraded the sovereign ratings of Greece as the recent Eurogroup relief measures reduced Athens’ debt servicing risks.
The rating agency raised the credit rating by a notch to ‘B+’ from ‘B’, with a ‘stable’ outlook.
S&P observed that debt relief announced by Eurozone finance ministers last week “significantly” reduced sovereign debt servicing risks for Greece over the next two years.
The move also increased the possibility of market access at more favorable terms for both the sovereign and the banking sector.
At the Eurogroup meeting, ministers deferred interest on a major portion of loans provided to Greece. Further, the country is set to receive the last tranche of the European Stability Mechanism programme, totaling EUR 15 billion.
Following the conclusion of the Eurogroup meeting, Christine Lagarde, managing director of the International Monetary Fund, said the additional debt relief measures will mitigate Greece’s medium-term refinancing risks and improve its medium-term debt prospects, both of which are very welcome results.
S&P said the rating were underpinned by the unusually low cost of servicing much of Greece’s general government debt burden and official creditors’ ongoing support in the form of very long-dated concessional loans and debt relief.
Nonetheless, the agency said the size of Greece’s general government debt is an important ratings constraint as it has the second highest gross general government debt to GDP ratio of the rated sovereigns.
The “stable” outlook reflects the balance of risks to the sovereign’s creditworthiness.
The rating agency observed that banks in Greece are making progress on reducing high levels of non-performing loans, which would support financial conditions and also boost growth.
On the other hand, public and private debt remained high, and the authorities’ track record on attracting foreign direct investment is weak.