Scope: Debt reduction, reforms and development critical for new Greece upgrades

‘Keys’ for new credit institutions are growth, debt reduction and reforms, according to a report by the German rating agency Scope Ratings. More specifically, following the credit upgrade to the investment level, Greece should pay attention to the following factors: In stable nominal economic growth and continued fiscal consolidation to ensure a significant reduction in public debt to GDP – already estimated at 160.3% of GDP at the end of 2023, although the highest percentage remains in the Eurozone. The government must promote reforms and maintain prudent public finance management to ensure further stable debt reduction. further progress in strengthening the Greek banking system for the high levels of ‘red’ loans. It is stressed that the financial figures of Greek banks have improved significantly in recent years as well as the resolution of their balance sheets. Non-performing loans across the system decreased to 7.9% in September 2023 from more than 49% in mid-2017 but Scope says banks are required to continue to prevent managing their asset quality to further close the gap against the rest of the EU. At the same time, the NPLs point out that they may increase again in the future due to the impact of higher interest rates on the ability to serve borrowers’ debt, while the increased share of deferred tax credits in the total capital of the banking system remains a problem. Scope proposes that the government continue to oversee further structural improvements in the economy, such as reducing the risks of the external sector, ensuring higher rates of medium-term economic growth and strengthening macroeconomic sustainability, stressing that Greece has significant current trade deficits and consistently in a net position debtor. It stresses that the economy’s medium-term growth potential remains moderate around 1% despite continuing progress in reforms through the Recovery and Durability Fund. The restrictions include adverse demographic elements, as well as weak and unequal productivity growth in all regions due to the years of underinvestment in the public and private sectors and the lack of dynamism in the business sector. Scope Ratings predicts that inflation will remain above the ECB’s target of 2% for much of this year, while it cannot exclude new crises from the supply side in the face of a turbulent international political and economic framework, which may lead to inflation higher again later and postpone the normalisation of monetary policies. Environmental challenges are also important with Greece being more exposed than other countries to increasing temperatures and more frequent heat and fires, which can damage the critical sectors of tourism and agriculture. It is recalled that the next assessments of Greece are from DBRS on March 7 and Moody’s on March 14.