ECONOMY

Fitch warns Greece of negative watch if it fails to reduce deficit below 3 pct

Greece could be placed on negative watch by ratings agency Fitch if it fails to reduce its budget deficit to below 3 percent of gross domestic product (GDP) by 2006, a Fitch official said yesterday. «If the (budget) deficit isn’t below 3 percent by the end of 2006, it could be a reason to put Greece on negative watch,» Fitch sovereign ratings director Chris Pryce told reporters on the sidelines of a securitization seminar in Athens. In December last year Fitch Ratings lowered Greece’s sovereign credit ratings to A from A+, in a move that followed a series of large upward revisions of the country’s budget deficit data. After the downgrade, the ratings agency had said that Greece would be off negative watch with a stable ratings outlook, a view that Pryce reiterated yesterday. «By the end of 2005, if I have to guess, Greece’s rating will be the same,» he said. «The bigger worry for Greece is the European Union rather than ratings agencies. I don’t think that Greece must push her luck with the EU.» The government is projecting a deficit target of 3.5 percent of GDP this year and 2.8 percent in 2006, under a baseline scenario that forecasts economic growth of 3.9 to 4.0 percent. The fiscal shortfall ballooned to 6.1 percent of GDP last year. According to Greece’s updated Stability and Growth plan for 2004-2007, public debt, which is among the highest in the eurozone, is seen falling to 103.9 percent of GDP in 2006 and to just below 100 percent in 2007 from 110.5 percent last year. «It could happen but we do not see how anyone, including the government, would know. The revised statistical methods introduced to better forecast government finances are untested. The fall in debt looks particularly ambitious,» Pryce said. Higher primary surplus targets will be needed to get the country’s public debt down. «Belgium for years targeted a primary surplus of 6 percent and Greece has less time to get things right because of the pensions time bomb,» Fitch said. (Reuters)