Debt chief: Current account doesn’t pose threat of Greek downgrade

Greece is not at risk of a credit-rating downgrade despite the ballooning of its current account gap, the head of the country’s debt agency said yesterday after warnings by ratings agency S&P. «With other macroeconomic ratios, such as the budget deficit and public debt-to-GDP improving, I don’t see any danger of a credit rating downgrade,» the head of Greece’s Public Debt Management Agency (PDMA), Spyros Papanicolaou, told Reuters. Spain, Greece and Portugal could face a significant threat to their sovereign credit ratings unless they can reverse a deterioration in their international investment position soon, Standard and Poor’s said yesterday. Papanicolaou said a planned 25 percent upward revision of the country’s gross domestic product (GDP), which still needs to be approved by European Union statistics agency Eurostat, could result in further improvement of key macroeconomic indicators. «On the contrary, if the macroeconomic improvement continues along with strong economic growth and if public debt falls further, also because of an upward revision of GDP, then the country’s rating could be upgraded in the next two years,» he said. The S&P report said Greece, Spain and Portugal were expected to run current account deficits equivalent to about 9 percent of their gross domestic product in 2006-8. «If this trend is not reversed soon, the resulting external debt service burden will weigh on these economies’ growth prospects, with the resulting deterioration of fiscal performance a significant threat to ratings,» S&P said. This is a concern for the Bank of Greece as well. The central bank estimates the country’s current account deficit may balloon by 3 percentage points this year and come very close to 11 percent of GDP. It cites higher oil prices, a rising volume of imports and increased debt-servicing payments as the main factors that more than offset the growth in exports. Greece’s current account gap averaged 7.3 percent of GDP in 2001-05, worsening the country’s negative international investment position – from -59 billion in 2000 to -148 billion last year. Net payments to service this external debt mountain reached 2.4 percent of GDP last year and are seen as climbing to 3 percent in 2006. (Reuters)

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