An agreement reached between Greece and its creditors raised the possibility of a debt relief in the official sector and it is positive for the country’s credit rating, Moody’s said in a credit outlook analysis.
The credit rating firm said the basic positive of the agreement is that it would likely lead to further debt relief measures in the official sector, making the country’s debt more sustainable. The agreement is expected to lead to a conclusion of the second review of the Greek program, a precondition for disbursing a loan tranche of around 8.0 billion euros to Greece, allowing the country to pay large debt repayment in July.
Moody’s also said that completion of a second review was also likely to pave the way for inclusion of Greek bonds in a QE program of the European Central Bank, offering additional support to regain access to capital markets and improving climate for domestic depositors.
Moody’s said that a main issue of disagreement between European creditors and the IMF was the height of primary fiscal surpluses that Greece could maintain for several years. “The Greek government managed to surpass expectations achieving a primary surplus of around 4.0 pct of GDP. However, we doubt (along with IMF) that Greece can preserve large surpluses for a long period of time. On the contrary, we expect primary surpluses of around 2.5 pct of GDP this year and next year, which mean a total fiscal deficit of 0.5-1.0 pct of GDP.
Given the negative consequences to growth from a delay in concluding the second review, we expect a growth rate of 1.5 pct this year, down from a European Commission forecast for a 2.7 pct growth rate,” Moody’s said.