Rating to depend on policies
Agencies await government’s declarations in Parliament to decide on investment grade
Rating agencies will focus on the government’s policy declarations in Parliament this week, examining them in detail before proceeding with their verdicts for Greece.
The strong message of the election for continuing a policy path focused on strengthening growth and investment and reducing the debt ratio, unquestionably supports the upward trajectory of the country’s ratings and return to investment grade. However, the reforms the government says it will implement will determine the speed of this upgrade.
Although three of the four major agencies rate Greece just one step below investment grade at BB+ – DBRS Morningstar, S&P and Fitch – only S&P gives (since April) a Positive outlook, which means a possible upgrade in the next six to 12 months. The other two agencies give Stable prospects. This, according to the logic of the evaluations, means that first there will be an improvement in the outlook and then the upgrade will follow.
Of course, it is not being ruled out that the agencies will directly upgrade Greece to investment grade in their next assessment. As Societe Generale notes, after all, Greece is being wronged by the houses, “as its assessment should be close to that of Italy.”
However, the speed of the agencies’ movement will be determined by how they interpret the government’s policy declarations. As S&P analyst Samuel Tilleray pointed out to Kathimerini, “reforms and fiscal results will be key elements for our next rating decision on Greece.”
“The upgrade may take place this summer, but we believe the agencies want to see the specific plans of the new government before taking action,” says Themis Themistokleous, head of the EMEA investment office of UBS Global Wealth Management. “S&P is closer to investment grade, but it only recently raised the outlook to Positive and may move to upgrade later this year or in early 2024. Fitch and DBRS have often in the past taken rating action overriding the outlook. Greece is likely to receive an investment grade rating this year, but to achieve an average investment grade rating it will likely need to wait until 2024.”
