Having been in the doldrums following economic devastation caused by the global financial crisis, is Greece – the subject of recent bailouts, political, social and economic upheavals – finally turning a corner? Rating agency Moody’s says the answer would be a cautious yes.
Last week, it upgraded the Government of Greece's local and foreign currency issuer ratings to B1 from B3 previously, and changed the outlook to ‘stable’ from positive on the previous lower rating.
Moody's also upgraded the local currency senior unsecured debt rating to B1 from B3, as well as the foreign currency senior unsecured MTN programme and senior unsecured shelf ratings to (P)B1 from (P)B3.
The agency said the country’s painful reform programme appears firmly entrenched and reforms implemented are starting to bear fruit. A strengthening economy in conjunction with creditor surveillance should further reduce risk of reform reversal, it added.
Another driver for the upgrade was the track record of strong fiscal performance that is now firmly “established and is likely to be sustained, as most of the fiscal improvement is due to structural measures.”
Moody’s also said public debt sustainability is materially enhanced over the medium term by last June's debt relief package. “Sovereign has successfully re-established market-based funding, supported by very large cash cushion and strong creditor support.”
Overall, the key factor in the improvements of Greece's credit profile in recent years has been the progress made in the adjustment programme of reforms agreed with the country's official-sector creditors.
“While progress has been halting at times, with targets delayed or missed, the reform momentum appears to be increasingly entrenched, with good prospects for further progress and low risk of reversal.”
In Moody's view, as well as speaking to the gradual strengthening of Greece's institutions, the ongoing reform effort is slowly starting to bear fruit in the economy.
“Greece's economy has become significantly more open in recent years, with exports now accounting for 37% of nominal GDP as of Q3 2018 compared to 22% back in 2010. Competitiveness has markedly improved, due to a significant reduction in labour costs, and exports of both goods and services have accelerated strongly during 2018.”
Moody’s also said privatisations have recently been gaining pace and are a positive step towards bringing in foreign expertise, capital and investment as well as improving competition in domestic markets.
Reforms in the labour market are starting to be reflected in strong employment growth, which has been running at 2% or above for the past three years, ahead of average nominal GDP growth for the period.
Bank of Greece and the Labour Ministry data suggests employment contracts are becoming more flexible and wage bargaining is increasingly at the firm level, rather than at the sector or industry level as was historically the case.
Green shoots are indeed visible, and progress appears to be steady but there’s still a long way to go before a holistic turnaround in fortune.
