Fitch: Debt, fiscal stability are key indexes
Fitch Ratings is sending a message of fiscal restraint to Greece, about two months before its critical “verdict” for the country. In an analysis of the prospects of European countries and the factors that will play a role in the course of their evaluation, the agency underlines that the course of public finances and the trajectory of debt indicators are key.
On Greece, it states that its assessment is supported by structural indicators, including governance indicators and GDP per capita, which are among the highest among countries rated below investment grade. These advantages, however, contrast with the legacy of the debt crisis, which includes high debt levels, low medium-term growth potential and credit sector vulnerabilities.
Fitch expects fiscal consolidation to continue in 2023, with the primary surplus widening to 1.2% of GDP, supported by strong revenue growth and spending restraint. The government’s ambitious fiscal plans, it notes, put primary surpluses at 2.5% of GDP annually in 2024-2026 on average, thanks in part to improved revenues. However, the risks surrounding spending pressures could complicate the achievement of these goals, Fitch adds.
In its baseline scenario, Greece’s public debt-to-GDP ratio would fall by over 50% by 2025 to 149.7% from a high of 206% in 2020, one of the largest declines in all countries it evaluates. Stable funding conditions, limited debt rollover needs and high cash holdings (35 billion euros) will keep supporting debt management.
On a macro level, Fitch points out that Greece’s GDP growth is outpacing that of most eurozone peers thanks to rising investment and very strong tourism growth in 2023. Combined with relatively stable inflation and continued absorption of EU funds, this will help keep growth at 2% on average in 2023-2025.
Ahead of the agency’s next scheduled assessment for Greece on December 1 – with the market having priced in the strong possibility Fitch will give the country an investment grade – the firm highlights the factors that could lead to an upgrade: confidence in a post-election fiscal policy leading to a steady decline of the debt ratio in the medium term, as well as an improvement in the medium-term growth potential and performance of the economy, for example due to higher investment momentum or the implementation of structural reforms.
