By William Watts, MarketWatch
It’s no surprise that Athens is running out of cash, but Greece’s decision to bundle weekly International Monetary Fund loan repayments into one, big 1.5 billion euro ($1.7 billion) payment on June 30 shows may demonstrate how dire the country’s liquidity situation is becoming, says ratings agency Fitch.
“The risk that Greece misses its larger IMF payment at end-June cannot be discounted,” wrote Fitch analysts in a Friday note.
Greece was due to make a Friday payment of around €300 million to the IMF, but informed the institution Thursday that it would use a loophole—last used by Zambia around three decades ago—to bundle principal payments into one big end-of-month payment.
The move was seen further adding to a tense situation as Athens and its international creditors—the IMF, the European Commission, and the European Central Bank—continue to wrangle over how to extend the country’s bailout program. Greece’s government has had to stretch to meet debt and other obligations as the standoff continues, raiding various government funds to stay afloat.
The country’s banks, meanwhile, are reliant on emergency funding via Greece’s central bank as depositors flee. But the European Central Bank has ultimate authority and could pull the plug if it decides the country’s banks are insolvent—a move that would pave the way for capital controls and could set the stage for Greece’s exit from the eurozone.
Obviously, a deal would change the situation. But the Fitch analysts note that the prospect of fresh aid from Greece’s creditors remains “highly uncertain.” Even if Greece and its creditors do strike a deal, it will likely meet political opposition in Greece from elements of the ruling Syriza party upset over moves to limit pensions and public-sector wages.
Now, since Fitch’s rating reflect the risk of default on privately-held debt rather than debt held by the official sector, the decision to delay repayment to the IMF by itself doesn’t constitute a “ratings default,” the firm said.
Still, the decision to bundle the payments “illustrates the pressure that a lack of market or official funding and tight liquidity conditions for Greek banks are putting on Greece’s sovereign liquidity,” Fitch said, noting that its CCC rating on Greece indicates that default on privately held bonds is a “real possibility.”
Rival ratings firm Standard & Poor’s in April cut Greece’s long-term credit rating by one notch to CCC-plus. That is one notch above Fitch’s rating. Moody’s Investors Service also recently downgraded Greece to Caa2 from Caa1.
