Moody’s upgrades Greek government bonds to A1
International credit rating agency Moody’s said yesterday it had upgraded Greek government bonds to A1 from A2 in recognition of Greece’s fiscal improvement. However, it called on Greece to address structural problems, in particular social security liabilities, which could impede future growth. Moody’s said the increase in the Greek public debt-to-GDP ratio as a result of Eurostat’s crackdown on off-balance sheet transactions did not obscure the fact that Greek public finances had improved over the last decade. Earlier this year, the EU statistical office decided to set out new rules governing complex financial transactions used by governments in the eurozone in calculating their debt ratio, a key yardstick of budgetary discipline. The new rules affected revenues from securitization operations and convertible bonds. Last year, Greece raised close to 6 billion euros from both transactions, amounting to 4.4 percent of GDP. The reclassification jacked up Greece’s debt-to-GDP ratio in the last two years, deflating the government’s claim that it had brought the ratio down to 100 percent in 2001. Debt this year is now expected at 105.3 percent instead of 103.2 percent, the Finance Ministry said last week, while next year’s ratio is expected to fall to 100.2 percent from an original target of 95.1 percent. Moody’s also underscored the urgency of structural reforms, in particular the social security system, where net liabilities are the highest in Europe. Social security reforms announced in the summer involved only marginal parametric changes that actually increase benefits to the majority of the work force. While growth is currently driven by investments linked to the 2004 Olympic Games and EU capital transfers, Moody’s said that «these sources will stop by 2004 and 2006 respectively, making the need for ongoing structural reforms even greater.» It warned that failure to address the issue could impair future growth prospects. Two other credit rating agencies in the meantime have said a rating upgrade would depend on how fast Greece reduces its mountain of debts. Fitch, the London-based rating agency, said last month that an upgrading of Greece’s sovereign ratings would be conditional on a faster decline in its public debt. It affirmed Greece’s long-term foreign and local currency ratings at ‘A’ and its short-term foreign currency rating at ‘F1’ while revising its outlook to positive from stable. Fitch also urged more progress on structural reforms. Standard & Poor’s early this year affirmed its ‘A’ long-term rating and positive outlook for Greece. It said an upward revision would hinge on further progress on the privatization front, restructuring of public enterprises and further debt reduction. A credit rating upgrade is vital if Greece does not want to see future borrowing costs soar after 2005, when new BIS rules on bank capital adequacy come into force.