Moody’s maintains stable outlook on Greece’s debt

Credit rating agency Moody’s Investors Service said yesterday it was maintaining a «stable outlook» rating on Greece’s A1 long-term debt in the near future and warned that high public debt and uncertainties over long-term growth were limiting any prospects of an upgrade. Moody’s upgraded Greece’s long-term rating to A1 from A2 in November 2002. Despite the upgrade, it was the lowest in the eurozone, with all other countries rated a double A and above. Greece is rated A with a positive outlook by Standard & Poor’s, which is again the lowest among the 12 eurozone members. Fitch has Greece at A with a positive outlook. Prospects of a higher rating for Greece are tied to two issues, Moody’s said. «Greece’s rating is constrained by the government’s relatively high level of debt and by uncertainties regarding its long-term economic growth prospects,» wrote Sara Bertin, author of the report. Agreeing with the assessment, Eurobank economist Platon Monokroussos said a rating upgrade seems improbable with Greece’s mountain of debt, high inflation and tardy structural reforms. «I don’t see an upgrade in the medium term on the cards unless the government proceeds with structural reforms and better manages its finances,» he said. With public debt standing at 105.8 percent of gross domestic product last year, Greece was the second most indebted country in the eurozone. It plans to reduce debt to 100.2 percent of GDP this year and to 96 percent in 2004. Greece’s high debt could impair its medium- to long-term growth prospects, Moody’s warned, in addition to the structural challenges posed by the country’s substantial trade deficit, labor market rigidities and overburdened state pension system. Greece overhauled its debt-burdened and complex state pension system last year but critics said parametric changes do not address the fundamental issue of an aging population. Moody’s also pointed to the crucial role foreign direct investments (FDI) and structural reforms could play in Greece’s long-term economic growth. «Both sources of capital flows [2004 Olympic-related investments and EU funds] will stop by 2004 and 2006 respectively, thus reinforcing the need for continued high levels of FDI as well as structural reforms,» it said. Underlining Greece’s dismal record on FDI, the Bank of Greece early this week noted a hefty increase in the net outflow of direct investments in the first two months of the year as more Greek companies invested abroad than foreign investors invested in Greece. Prospects though are good, said Moody’s, citing Greece’s improved infrastructure, strategic location within the Balkans and an improved service sector driven by tourism and banking.