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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 sovereign rating.