Moody’s maintains Ba1 rating for Greece, one step below investment grade

According to the rating agency, the challenges for the Greek economy include a big current accounts deficit, while the size of the tourism and shipping sectors make the economy vulnerable to external shocks and any improvements to economic resilience by expanding the export base will take time.

Moody’s on Friday announced that its credit rating for Greece will remain unchanged at Ba1 with a stable outlook, which is one step below investment grade. Moody’s is now the only major agency that has maintained a non-investment grade rating for Greece.

According to the rating agency, the challenges for the Greek economy include a big current accounts deficit, while the size of the tourism and shipping sectors make the economy vulnerable to external shocks and any improvements to economic resilience by expanding the export base will take time.

A continuation of economic policies and commitment to fiscal consolidation combined with the successful implementation of the remaining reforms, especially to the judicial system, which will lead to greater resilience to external shocks and a faster improvement in fiscal strength and processing of NPLs than in Moody’s baseline scenario would support a higher rating, Moody’s said. Further improvements in the banking sector, reducing profitability variation and bringing asset quality and capitalisation closer to the euro area average, would also be credit positive. Factors leading to a rating downgrade would be a reversal of the economic policy of recent years or indications that the reforms of previous years are not producing the anticipated impetus to growth and the country’s fiscal position, weighing on business sentiment and investment. A sustained, material deterioration of the government’s fiscal position in combination with a sharp deterioration of the banking sector’s health would trigger a negative rating action. An escalation in the geopolitical situation in Europe involving NATO would also NPLSlikely lead to downward pressure on the rating.

Regarding the decision to keep the country’s rating unchanged, Moody’s said this was based on reforms that had led to visible improvements in the institutions and governance, stronger investments and a health banking sector. At the same time, it noted, the debt to GDP ratio remained very high, though this was offset by a favourable debt structuring and big cash buffer, while the Greek economy had successfully withstood the energy crisis, while significant funds from the European Union and private investments will support growth in the coming years.