Fitch raises sovereign rating one notch

Greece rises from B- to B with a stable outlook, thanks to primary surplus and increased cash flexibility

Fitch Ratings upgraded Greece one notch from B- to B, with a stable outlook, on Friday, stressing that the fiscal streamlining, as confirmed by its primary surplus in 2013 – which is set to grow bigger this year – will allow the country to enjoy more funding flexibility.

The firm attributed its upgrade to the adjusted primary budget surplus amounting to 0.8 percent of gross domestic product last year and forecast that it will grow to 1.4 percent of GDP this year. It also saw the economy expanding 0.5 percent this year and 2.5 percent in 2015.

Fitch points out that “near-term sovereign liquidity risk has fallen, although this remains contingent on Greece staying on track with its program. The government is not fully funded by EU and IMF lending over 2014-15 but there are several plausible options for bridging this official funding shortfall. These include the use of subsector deposits through repo transactions, and the unused portion of the official funds earmarked for bank recapitalization.” It adds that a better fiscal track record has been established.

“Fitch is one of the strictest agencies, but the words it has chosen are notable as it refers to a remarkable adjustment,” Finance Minister Yannis Stournaras said on Friday after informing Prime Minister Antonis Samaras of the upgrade, adding, “This means that the sacrifices of the Greek people are being acknowledged internationally and we need to safeguard them.”

Nevertheless, Fitch warns that the political risk remains high as “the loss of a junior coalition partner and defections by individual MPs have significantly eroded its majority. An early general election in the first quarter of 2015 is the most likely scenario, although a snap election this year cannot be discounted.”

The ministry confirmed on Friday the primary surplus figures for the first four months of 2014, saying it had reached 1.046 billion euros against a target for 742 million.

Indirect tax revenues lagged as value-added tax on fuel came in 382 million euros short and the special consumption tax on energy commodities fetched 182 million less than planned.

Net revenues missed their target by 7.1 percent, or 1.05 billion euros, amounting to 13.84 billion, while spending was 578 million euros below target at 17.28 billion.