Moody’s Raises Greece’s Rating as Reforms Bring Progress

Moody’s Investors Service raised Greece’s sovereign credit rating by one notch, despite the negative effect of the pandemic on the economy and the new three-week lockdown that started on Saturday morning.

The Mediterranean country’s long-term foreign-currency debt was upgraded to Ba3 with a stable outlook from B1, the first change since March 2019. “Ongoing reforms support a sustainable improvement in institutional strength and have already brought tangible progress in areas including tax administration and compliance and the fight against corruption,” Moody’s said in a statement.

The Moody’s decision, “which came in the midst of a global recession, is a strong vote of confidence in the growth prospects of the Greek economy post Covid,” Prime Minister Kyriakos Mitsotakis said in a Twitter post Saturday.

The Greek government won international praise for its handling of the first phase of the pandemic in the spring. Following a surge in the number of coronavirus cases over the past week and a continuous increase in the occupancy rate of intensive-care units, the government decided to impose a new lockdown until the end of November in an attempt to return to a “relatively normal December,” the premier said Thursday.

Greece also announced a new package of economic support measures worth a total 3.3 billion euros ($3.9 billion). The country’s cash reserves are currently above 37 billion euros after the government managed to successfully tap the markets, even during the pandemic, with low costs given that Greek bonds are eligible for the European Central Bank’s pandemic purchase program.

“The country’s growth prospects over the coming years are positive notwithstanding the negative near term impact of the pandemic particularly on the tourism sector,” according to Moody’s. “Greece’s economy will benefit from ongoing efforts to improve the investment climate coupled with inflows of very substantial European recovery funds.”

Moody’s projects Greece’s debt ratio will increase significantly this year, to about 200% of GDP, before declining again from next year onward on the back of the expected economic recovery. Greece’s economy is expected to contract by 9% in 2020, while its debt will rise to 207% of gross domestic product, the European Commission said Thursday.

Moody’s Raises Greece’s Rating as Reforms Bring Progress

The most important challenge for Greece is to reduce the huge stock of soured loans, which is a legacy of the decade-long debt crisis. Non-performing loans are more than 60 billion euros. While that number is lower than the 107 billion-euro peak in 2016, it makes the country’s bad-loan ratio the worst in the European Union.

The government is now considering a plan by the Bank of Greece to create a bad bank that will help lenders bring their exposure to NPLs to almost zero.

Fitch Ratings rates the country BB, while Standard & Poor’s has it at BB-.

©2020 Bloomberg L.P.

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