ATHENS, Greece – Debt-hobbled Greece got a new morale boost Tuesday, with Fitch ratings agency upgrading its sovereign credit grade, a day after the country’s European creditors backed the release of a new rescue loan payment.
However, the one-notch upgrade from CCC to B- still leaves Greece’s government debt six levels deep in junk status — that is, its bonds are not considered investment grade. It has languished in junk territory since 2010, after it admitted to doctoring its deficit reporting and lost access to bonds markets, requiring a massive international bailout.
Fitch set Greece’s outlook as stable, meaning the risks of an upgrade or downgrade are balanced.
In a statement, it said the economy is “rebalancing,” with the conservative-led government making clear progress in eliminating a budget deficit that exceeded 15 per cent of annual output in 2009. Fitch said the government’s harsh austerity program is on track, “amid a semblance of political and social stability.”
It noted, however, that risks remain in implementing the austerity and reform process demanded by its bailout creditors.
“Tangible economic recovery remains elusive, while resistance to reform is high,” it said.
Fitch is the second of the three major ratings agencies to upgrade Greece. In December, Standard & Poor’s upgraded Greece’s credit grade by 6 notches, from default to the B- junk rating.
Greece is in a sixth year of recession, largely attributable to the budget cutbacks and reforms. The economy has so far shrunk by a fifth since 2008, with unemployment at a record high of 27 per cent.
On Monday, the finance ministers from the 16 other European Union countries that use the euro approved the release of 7.5 billion euros ($10 billion) in loans to Greece, to be paid out in May and June.
They cited “further substantial progress” in the deficit-reduction program.
Prime Minister Antonis Samaras has said Greece’s economy will see a modest return to growth next year — an expectation echoed in the Fitch statement.
On Wednesday, Samaras sets off for a three-day visit to China, followed by a stop in Azerbaijan, to promote investments in Greece.
Greece hopes to return to bond markets in the first six months of 2014. In the meantime, it is holding regular short term debt auctions. On Tuesday, it auctioned off 13-week debt, paying the lowest rate for such debt since April 2011. It was the second lowest rate in 28 equivalent auctions that year.
The Public Debt Management Agency said it raised 1.3 billion euros ($1.7 billion) from the sale at an interest rate of 4.02 per cent.
Reactions to the repeated income cuts and tax hikes of the past three years started off furious, but have recently slackened as fatigue set in and the government repeatedly used emergency powers to stop major strikes.
On Tuesday, public servants’ unions held a 24-hour strike to protest against government plans to mobilize state school teachers who had planned a walkout timed to coincide with annual school-leaving exams.
But the public servants’ strike failed to make any visible impact on government-run services and was criticized as a token gesture of solidarity by teaching unions, which refused to join the walkout.
Public and private sector unions have also called work stoppages for Thursday, with Greece’s Air Traffic Controllers’ Association planning to halt flights on that day for four hours from midday.