(Repeat for additional subscribers)
April 11 (The following statement was released by the rating agency)
Greece's return to the international bond market helps
meet the sovereign's funding needs and highlights the magnitude of its fiscal
and economic adjustment under its EU-IMF programme, Fitch Ratings says. But
economic and political risks to adjustment remain, and it is unclear how
sustainable market access will be.
Greece priced the EUR3bn five-year issue to yield 4.95% on Thursday. These funds
should further reinforce the sovereign's fiscal financing position. Earlier this
month, the Eurogroup stated that the adjustment programme is fully financed for
the next 12 months, including by drawing on temporary sources of financing such
as deposits of general government subsectors. This is in line with our view that
programme funding shortfalls would be manageable.
The generation of a primary surplus a year ahead of schedule in 2013 is a key
measure of Greece's enhanced ability to pay its way since restructuring its
sovereign debt in 2012. (The latest IMF Fiscal Monitor estimates it at 1.5%,
above forecasts of a balanced budget.) On current trends, achieving a similar
primary surplus of 1.5% in 2014 appears achievable. The general government
posted surpluses in January and February this year, although social security and
hospital arrears continued to rise. The EU-IMF programme envisages higher
primary surpluses of 3% in 2015 and 4.5% in 2016.
High-frequency indicators suggest that a six-year recession is coming to an end,
and we forecast real GDP growth of around 0.5% in 2014. Last year's fiscal
outperformance should reduce this year's fiscal drag, and sets the stage for
talks with the Troika on further potential debt relief.
Regaining market access has been a key objective of the Greek programmes
(substantial funding gaps emerged in the first programme because of an
assumption that Greece would regain market access before it ended) and
Thursday's issue was heavily oversubscribed. But its success does not guarantee
that Greece will have made a sustainable return to market funding by the time
the current programme ends later this year. Market funding at around 5% is more
expensive than the average annual cost of Troika funds of 2%-3%. The IMF
estimates Greece's total fiscal financing needs for 2014 at 15.8% of GDP,
declining to 10.2% in 2015 and 4.5% in 2016.
And substantial risks to Greece's sovereign creditworthiness remain. Public debt
sustainability is far from secure and general government debt to GDP is very
high at around 175% (far above the 'B' category rating median, although gross
financing needs over the medium term are relatively low compared with ratings
peers). Political risk to reform and consolidation remains high, with reform
fatigue reflected in the government's small parliamentary majority and the
opposition's anti-reform stance.
This balance of achievements and risks is reflected in Greece's B-/Stable