A new ND government means that there will be continuity in the fiscal and economic policy and therefore, positive for Greece’s creditworthiness (credit positive), according to the credit rating agency Moody’s, in its analysis of the strong result of the ND in the elections of last Sunday.
Maintaining a focus on improving the business environment and the health of the banking sector, along with implementing the milestones and reforms under the national recovery plan, will support economic growth, the report adds.
“Combined with a commitment to fiscal adjustment and an increase in primary surpluses, maintaining current fiscal and economic policies improves the prospects for a significant reduction in Greece’s public debt burden,” it underlines.
It foresees one of the largest debt reductions in the world
Moody’s forecasts that Greece will see one of the largest debt reductions globally, with general government debt falling below 150% of GDP in 2025 from 171.3% in 2022, thanks to the prospect of significantly higher nominal GDP growth in the next years.
It also notes that the Greek economy has rebounded strongly since the pandemic, with real GDP growing by 5.9% in 2022 and 8.4% in 2021 after a 9% decline in 2020.
The Greek debt-to-GDP ratio, however, will remain very high in the coming decades, according to the analysis.
Why the Greek debt burden will become significantly more sustainable
According to Moody’s, Greece’s debt burden has become significantly more sustainable, despite the fact that its ratio to GDP will remain very high in the coming decades, thanks to very favourable loan repayment terms from the Eurozone and its large easing of debt provided by its creditors in the Eurozone since 2017.
Almost 80% of central government debt is owed to Eurozone institutions, including the European Central Bank and other Eurozone central banks, the house notes.
“The result is that Greece’s interest payments as a percentage of government revenue are low and will remain low for an extended period, even after taking into account the fiscal impact of the pandemic and the return to regular issuance in the capital markets.”
With this rate at 5.5% – 6%, Greece’s ability to repay its debt will remain stronger than Italy’s, the house notes.
