Conditions in Greece have stabilized under the third bailout program and support the stable outlook on Greece’s ‘Caa3’ rating, Moody’s Investors Service said in its annual credit analysis on Greece published on Monday.
However the implementation risks linked to the bailout conditions are still high “given the government’s slim majority in parliament and the weak track record and capacity of the public administration to execute legislated reforms”, underscoring the country’s economic and fiscal challenges, the rating agency added.
Moody’s forecasts the Greek economy will contract by 0.7 percent of GDP this year, before returning to growth estimated at 1.8 percent in 2017. In the short-term much will depend on the timely clearance of government arrears to the private sector, which stand at 5.5 billion euros billion as of April 2016 (3 percent of GDP).
“The outcome of the election in September 2015 and the successful conclusion of the first review of Greece’s third bailout program in June 2016 mean that the risk of scenarios involving either an impasse with official creditors and/or a deeper recession resulting from prolonged uncertainty has diminished somewhat,” the ratings agency said.
It also expects that Greece’s general government debt ratio will peak this year at 182.8 percent of GDP. “While the level is high, the structure of Greek public debt and debt-servicing requirements remain benign,” Moody’s said.
Upside potential could stem from further official sector debt restructuring, which will only be considered after the current bailout program expires, and remains contingent on both euro area approval and the Greek government’s ability to successfully implement the agreed fiscal and structural reforms.
