DBRS Morningstar brings Greece one step from investment grade

Greece unexpectedly got to the brink of investment grade on Friday night as DBRS Morningstar upgraded the country’s credit rating to ‘BB high’, from ‘BB’, while reducing its outlook from Positive to Stable, with the war in Ukraine slashing about 1% of economic growth this year.

That single-notch upgrading by one of the four major rating agencies that the European Central Bank also takes into account has brought Greece one step away from “junk” status and into investment grade after more than a decade.

Canada-based DBRS Morningstar said the upgrade reflects its view that “Greece continues to progress economic reforms and remains fully committed to fiscal consolidation.”

It noted that “the economy grew by 8.3% last year and is now very close to its pre-pandemic level. Fiscal overperformance and cash management strategy in 2021 led to liquid cash reserves remaining very high, currently around 41 billion euros.”

Finance Minister Christos Staikouras greeted the news stating that “this is a particularly positive development, and the acknowledgment of the progress and the prospects of the economy. The upgrade sends the message that the Greek economy heads steadily to the right direction, even under the current adverse conditions, creating a clear and realistic path toward obtaining investment grade in 2023.”

For DBRS Morningstar, “Russia’s invasion of Ukraine looks set to shave off around one percentage point from this year’s GDP growth.

It went on to note that the ECB last December signaled its support to Greek government bonds. Greek banks continue to make significant progress in reducing nonperforming loans (NPLs) to single digits, even with some new asset quality deterioration, it said.

“The Stable trend reflects DBRS Morningstar’s view that Greece’s longer term economic prospects appear to be considerably strengthened by governance, investments, exports and reforms, underpinning public sector debt sustainability. DBRS Morningstar views that several credit uncertainties remain – the global economic implications of the situation in Ukraine; asset quality of the financial sector; and the extent to which the ECB will provide support to Greek bonds in a situation of market disruption,” the agency pointed out.

“Greece’s ratings are underpinned by euro area membership. Greece is one of six European Union member states with EU adopted plans that include grants and loans. Moreover, the country is one of five member states to submit a first payment request to the European Commission that should release the first disbursement of €3.6 billion, probably in April. Around €70 billion of funds from the Next Generation EU financial instrument and the Multiannual Financial Framework are available in total. Greece’s National Recovery and Resilience Plan (Greece 2.0) consists of reforms that will likely boost inclusive growth and investment narrowing the investment gap between Greece and its euro area peers,” the company added.