MARKETS

DBRS Morningstar affirms Greek rating at BB (low)

dbrs-morningstar-affirms-greek-rating-at-bb-low

DBRS Morningstar confirmed Greece’s sovereign credit rating at BB (low), with a stable outlook on Friday.

The confirmation of the Stable trend reflects DBRS Morningstar’s view that Greece arrived to the current crisis following years of fiscal overperformance, which together with the sizable cash reserves provide the country with some fiscal capacity to help weather the impact of the crisis.

The Canada-based agency stated the coronavirus crisis has taken a heavy toll on the Greek economy leading to a sharp real GDP contraction of 8.2% in 2020. “This was due to the strict measures to prevent the spread of the virus and the fallout of the tourism sector, which is an important contributor to the Greek economy. In response to the crisis, the government has implemented targeted measures to support households and businesses affected by the crisis. That will lead to a substantially higher fiscal deficit and public debt ratio,” said DBRS Morningstar.

The confirmation of the ratings is underpinned by Greece’s membership of the euro system,” read the company statement: “Since its election in July 2019, the Greek government has showed strong commitment in implementing its reform agenda in co-operation with the European institutions. On the back of structural fiscal reforms implemented during the adjustment programs, Greece has maintained a prudent fiscal stance, up until the crisis, resulting in five years of primary surplus, overachieving its fiscal targets and leading to additional debt relief.”

“Additionally, the inclusion of Greek bonds in the European Central Bank’s (ECB’s) Pandemic Emergency Purchase Program (PEPP) safeguards Greece’s ability to access the markets at historically low funding costs. Benefiting from the favorable financing environment Greece is on course to prepay 3.3 billion euros of more expensive debt owed to the IMF,” said DBRS Morningstar.

“Most importantly, Greece is expected to receive a substantial amount of grants from the Next Generation EU financial instrument amounting to around 9% of 2019 GDP that will likely support the recovery and improve the growth prospects of the Greek economy,” it noted, adding that the Hercules asset protection scheme has helped banks to facilitate nonperforming loan disposals, although ”the Covid-19 crisis will lead to new NPLs,“ it warned.