Why Moody’s kept its rating

Banks and the country’s fiscal position – mainly the high debt – are the factors that prevented Moody’s from upgrading Greece to investment status last week. This comes at a time when the country continues to face four other structural challenges that are not improving as fast as they should improve and also limit the rating, as Moody’s chief analyst for Greece, Steffen Dyck, explains to Kathimerini.

These challenges are the “gaps” on the reform front – such as the slow delivery of justice, the weak external position (current account deficit is too high), the one-dimensional economy (relying heavily on tourism and shipping) and demographics combined with climate change.

Moreover, during the double upgrade the rating agency carried out in September, it attributed a stable outlook to Greece, which means that no positive or negative movements are expected in its rating in the next 12-18 months, that is until September 2024 or March 2025.

Although the average rating of Greece was already at investment grade (at BBB-, which is the lowest rung of investment grade), which had led to the inclusion of Greek bonds in international indices, a move by Moody’s would have tangible effects.

Moody’s and S&P own about 80% of the global market, while it is estimated that inflows into Greek bonds would double if Moody’s decided to upgrade Greece. The inclusion of Greek bonds in the indexes thanks to the upgrade by Fitch last December is estimated to have brought inflows of 6-10 billion euros, while if Moody’s upgraded the Greek debt, the inflows would reach up to €20 billion.

However, the house seems to need quite a bit more time to take the next step and may not even do so during its second scheduled assessment for Greece this year, on September 13.

As Dyck explains, “our last rating action for Greece was on September 15, 2023, when we upgraded it by two notches. The outlook we have given is stable (meaning an expected stability or maintenance of the credit rating in the medium term), balancing the positive developments observed and the positive trend we are expected to face against the structural challenges.”