London, 29 November 2013 -- Moody's Investors Service has today upgraded Greece's government
bond rating to Caa3 from C. The outlook on the rating is now stable.
The short term ratings remain Not Prime (NP).
The upgrade reflects the combination of the following key drivers:
(1) The significant fiscal consolidation that has taken place under Greece's
structural adjustment program despite low growth and political uncertainty.
As a result, Moody's expects that the government will achieve (and
possibly outperform) its target of a primary balance in 2013, and
record a surplus in 2014 in accordance with the adjustment program.
(2) The improvement in Greece's medium-term economic outlook
supported by a cyclical recovery in the economy and also the progress
made in implementing structural reforms and rebalancing the economy.
(3) The significant reduction of the government's interest burden
following previous restructurings and official sector repayment assistance.
The key drivers taken together reduce the likelihood of further Private
Sector Involvement (PSI) being undertaken as a condition for further financing.
Concurrently, Moody's has today raised the local and foreign-currency
ceiling of Greece to B3 from Caa2.
RATINGS RATIONALE
RATIONALE FOR UPGRADE
The first driver behind Moody's upgrade of Greece's rating is the
government's progress in fiscal consolidation under the Troika-supported
program, which has led to a 74% (or 11.6% of
GDP) decline in its headline deficit since 2009. Based on the government's
budget execution record up until October, Moody's believes
that the government's deficit target (4.1% under the
Troika support program, 13.5% of GDP according to
Eurostat's definition, which also includes bank recapitalization
costs) is likely to be within reach. Moreover, the government's
recently presented 2014 budget envisages a further reduction in the general
government deficit, which remains in line with targets under the
Troika support program.
Moody's recognizes that the 2014 budget balances the fragile social
and political environment in the country with the country's commitment
to its international creditors. As a result, the rating agency
expects the focus of the budget will remain on savings generated from
structural reform measures as opposed to further expenditure cuts.
That being said, Moody's believes that the government remains
committed to achieving a primary surplus of close to 1.5%
of GDP in 2014, especially as this will be required to qualify for
continuing debt reduction from official creditors.
The second driver behind the upgrade is the evidence that the Greek economy
is bottoming out after nearly six years of recession and that the combination
of cyclical factors and the implementation of structural reforms are leading
to a gradual improvement in medium-term growth prospects.
Over the near term, the rating agency expects only a modest contraction
of 0.5% in 2014 before the Greek economy records growth
of 1% in 2015. Net exports will remain the near-term
growth driver of the economy (led by tourism receipts) supported by a
deceleration in consumption and investment growth. Although private
investments remain fragile and weak, public investments continue
to be supported with the disbursements and greater absorption of EU structural
funds.
Looking further ahead, the rebalancing of the economy continues,
with Moody's expecting the current account to shrink to a deficit
of 0.5% of GDP in 2013 from an average deficit of around
10% over the previous five years. In addition, sentiment
indicators -- namely industrial confidence surveys as well
as indicators for the service industry -- illustrate a significant
upward improvement in business expectations for the next 12 months.
The third driver of today's rating action is Greece's significantly
reduced interest burden, resulting from the compositional change
in the country's debt profile following two defaults on private-sector
debt and as a result of the official-sector repayment assistance.
Moody's expects that, as at year-end 2013, approximately
83% of Greece's general government debt will be owed to the
official sector (mainly the IMF, EU and the ECB and euro area governments),
with the balance accounted for by domestic banks and other private sector
creditors.
Key debt metrics have improved as a result of this new creditor structure.
Greece's debt-affordability ratio (general government interest
expenses as a percentage of revenues) has decreased to an estimated 9.2%
in 2013 from 17.0% in 2011, and interest as a percentage
of GDP at around 4% of GDP is now consistent with other countries
in the euro area. Greece's debt-maturity profile has
also been lengthened to around 17 years in 2013, from around 6.5
years in 2011. Moody's does caution, however,
that Greece's substantial debt stock (estimated at 175% of
GDP in 2013) continues to weigh on its solvency. Although the rating
agency expects debt to peak next year and then to fall from 2015 onwards,
the overall reduction will be gradual and will remain susceptible to nominal
growth shocks and policy implementation risks.
The very significantly diminished share of privately held debt may also
weaken the rationale for a new round of PSI in order to improve Greece's
debt profile. This assessment balances the limited financial benefits
to Greece's supporters with their incentive for the country to regain
access to the private debt markets as quickly as possible.
However, Moody's notes that the above-mentioned credit
positive drivers are balanced by Greece's still large debt burden
and the expectation that the current political environment will prove
challenging in terms of negotiations with official creditors (as reflected
in the latest negotiations on the 2014 budget). As a result,
the rating remains at a low level to reflect the associated risks to the
few remaining private-sector creditors.
RATIONALE FOR RAISING LOCAL AND FOREIGN-CURRENCY CEILING
Moody's has raised the local and foreign-currency ceiling
of Greece to B3 from Caa2. Notwithstanding a fragile and unpredictable
domestic political environment, the B3 country risk ceiling reflects
a slightly lower redenomination risk and a lower likelihood of exit from
the euro area as a result of a slowly improving economy, improved
debt affordability and continued euro area support as the country achieves
its targets under the Troika program.
WHAT COULD MOVE THE RATING UP/DOWN
Moody's could consider upgrading the rating in the event of a combination
of (1) an easing of political uncertainty; (2) a continuation of
structural reforms which would support long-term economic growth;
and (3) sustained primary surpluses, which would support a continued
decline in debt levels.
Conversely, the rating could be downgraded if there is a deceleration
in the implementation of the Troika economic program due to heightened
political risk and reform fatigue, as this would further hinder
Greece's growth prospects and its ability to generate large primary surpluses
over the coming years.
GDP per capita (PPP basis, US$): 24,260 (2012
Actual) (also known as Per Capita Income)
Real GDP growth (% change): -6.4% (2012
Actual) (also known as GDP Growth)
Inflation Rate (CPI, % change Dec/Dec): 0.8%
(2012 Actual)
Gen. Gov. Financial Balance/GDP: -9%
(2012 Actual) (also known as Fiscal Balance)
Current Account Balance/GDP: -2.4% (2012 Actual)
(also known as External Balance)
External debt/GDP: [not available]
Level of economic development: Low level of economic resilience
Default history: At least one default event (on bonds and/or loans)
has been recorded since 1983.
On 25 November 2013, a rating committee was called to discuss the
rating of the Greece, Government of. The main points raised
during the discussion were: The issuer's economic fundamentals,
including its economic strength, have materially increased.
The issuer's fiscal or financial strength, including its debt profile,
has materially increased. The issuer has become less susceptible
to event risks, particularly contingent liabilities emanating from
the banking sector. However, the political environment in
Greece continues to be fragile.
The principal methodology used in this rating was Sovereign Bond Ratings
published in September 2013. Please see the Credit Policy page
on www.moodys.com for a copy of this methodology.
The weighting of all rating factors is described in the methodology used
in this rating action, if applicable.
REGULATORY DISCLOSURES
For ratings issued on a program, series or category/class of debt,
this announcement provides certain regulatory disclosures in relation
to each rating of a subsequently issued bond or note of the same series
or category/class of debt or pursuant to a program for which the ratings
are derived exclusively from existing ratings in accordance with Moody's
rating practices. For ratings issued on a support provider,
this announcement provides certain regulatory disclosures in relation
to the rating action on the support provider and in relation to each particular
rating action for securities that derive their credit ratings from the
support provider's credit rating. For provisional ratings,
this announcement provides certain regulatory disclosures in relation
to the provisional rating assigned, and in relation to a definitive
rating that may be assigned subsequent to the final issuance of the debt,
in each case where the transaction structure and terms have not changed
prior to the assignment of the definitive rating in a manner that would
have affected the rating. For further information please see the
ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.
For any affected securities or rated entities receiving direct credit
support from the primary entity(ies) of this rating action, and
whose ratings may change as a result of this rating action, the
associated regulatory disclosures will be those of the guarantor entity.
Exceptions to this approach exist for the following disclosures,
if applicable to jurisdiction: Ancillary Services, Disclosure
to rated entity, Disclosure from rated entity.
Regulatory disclosures contained in this press release apply to the credit
rating and, if applicable, the related rating outlook or rating
review.
Please see www.moodys.com for any updates on changes to
the lead rating analyst and to the Moody's legal entity that has issued
the rating.
Please see the ratings tab on the issuer/entity page on www.moodys.com
for additional regulatory disclosures for each credit rating.
Alpona Banerji
Asst Vice President - Analyst
Sovereign Risk Group
Moody's Investors Service Ltd.
One Canada Square
Canary Wharf
London E14 5FA
United Kingdom
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454
Bart Jan Sebastian Oosterveld
MD - Sovereign Risk
Sovereign Risk Group
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653
Releasing Office:
Moody's Investors Service Ltd.
One Canada Square
Canary Wharf
London E14 5FA
United Kingdom
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454
Moody's upgrades Greece's government bond rating to Caa3 from C; stable outlook
