Greece is cautiously optimistic ahead of Moody’s verdict on the economy this Friday the 13th, with the county anticipating an upgrade to investment-grade status, seen as the missing ‘key’ needed to solidify the progress Greece has made over the past five years.
Moody’s is the fifth major credit rating agency to be approached for an investment-grade rating—after DBRS, Fitch, S&P, and Scope have already upgraded Greece.
It’s no coincidence that Dimitrios Tsakonas, head of the Public Debt Management Agency (PDMA), highlighted at the Economist conference this summer the crucial role that Moody’s investment-grade status would play in the Greek economy.
He noted that potential investments in Greece currently range from 6 billion to 10 billion euros. Still, if Greece achieved an investment-grade rating from all three major agencies, that figure could double to between 12 billion and 20 billion euros.
However, what is important for the country is that if there is a supply of capital, the cost of borrowing decreases, yielding significant long-term benefits for Greece. This, in turn, would positively impact the borrowing costs for banks and, subsequently, businesses.
What Holds Moody’s Back?
Moody’s rating for Greece remains at Ba1, one notch below investment grade, with a stable outlook for re-evaluation.
The agency’s hesitation to upgrade is rooted in its caution towards an economy that, at the beginning of the fiscal crisis in the spring of 2010, was rated A3—middle, or “upper” tier, according to Moody’s classifications. Within two months, Greece’s rating was downgraded to “junk” status, where it remains today.
For Moody’s, growth is not merely a numerical figure. A modest growth rate could imply lower tax revenues, greater difficulty in meeting fiscal targets, and another hurdle in closing the notorious investment gap.
Moody’s reluctance to upgrade Greece is also attributed to the country’s still-high debt-to-GDP ratio and a significant current account deficit. Additionally, the Greek economy remains vulnerable to external shocks, given its heavy reliance on sectors such as shipping and tourism.
The credit ratings agency also calls for continued reforms, particularly in the judicial system, and a quicker-than-expected improvement in fiscal strength.
