Credit ratings agency Moody’s on Friday upgraded Greece’s rating to Baa3 from Ba1 on Friday, placing the country at investment grade for the first time since the Greek recession.
Moody’s was the last remaining major ratings agency that had continued to classify Greece as non-investment grade, placing it one notch below the investment grade threshold in its previous revision in September 2024.
With this, the outlook of the Greek economy made the leap from “stable” to “positive.”
Moody’s also raised Greece’s local currency and foreign currency country ceilings to Aa3 from A1, which means de minimis exit risk from the euro area.
“Today’s upgrade marks the end of a major cycle for the Greek economy and certifies the country’s return to European normality,” outgoing Greek Economy and Finance minister, Kostis Hatzidakis, commented. “It is the result of the systematic effort made over the last 5.5 years, which was not easy, amidst international crises and geopolitical instability.”
“The upward trend must continue in order for our country to rise even higher,” he added.
“It is up to us, not only to leave the crisis behind once and for all, but also to continue the upward trend of recent years, with a plan, seriousness and determination to improve the lives of Greeks and ensure a positive future for our country.”
Following a cabinet reshuffle on Friday, Hatzidakis was named Deputy PM and is succeeded in the Economy and Finance ministry by Kyriakos Pierrakakis, former Minister of Digital Governance.
The upgrade reflects Moody’s view that Greece’s sovereign credit profile now has greater resilience to potential future shocks, the agency notes.
“The public finances have improved more quickly than we had expected. Based on the government’s policy stance, institutional improvements that are bearing fruit, and a stable political environment, we expect Greece to continue to run substantial primary surpluses which will steadily decrease its high debt burden,” the agency detailed in its announcement of the Greek economy upgrade.
“Moreover, the health of the banking sector continues to improve, which limits the risk of a banking sector-related credit event that could have a negative impact on the sovereign’s credit profile,” it continued.
Despite a number of challenges that remain for the Greek economy, Moody’s forecast that the Greek debt-to-GBP ratio will continue to decline as Greece will keep running large primary surpluses at 2 to 2.5% of GDP over the medium term.
On the challenges side, completing institutional and growth-enhancing economic structural reforms will take time, Moody’s argues.
“Although debt-to-GDP has fallen quickly in recent years, it will remain one of the highest in our rated universe. Having said this, the Greek authorities are using the positive momentum created by the Recovery and Resilience Fund (RRF) resources to robustly implement credit-supportive policies,” the report acknowledges.
“Over a number of years, the Greek public finances have outperformed our baseline expectations, which increases our confidence that Greek debt will remain on a firm downward path. These improvements are due to both ongoing expenditure restraint and tax revenues that are rising quickly in light of ongoing institutional improvements in tax compliance and collection,” Moody’s forecasts.
The agency observes that Greece generated an extra 2 billion euro in tax revenue last year through its anti-evasion efforts, including a narrowing in the VAT gap, which was achieved part through a continuing large-scale digitalisation strategy that also supports tax compliance.
“This revenue outperformance is not coming at the expense of a rising tax wedge which is important to preserve economic competitiveness,” the report details. “In fact, the labour tax wedge has fallen by around 4.5 percentage points since 2019, and the authorities continue to prioritise modest tax reductions, such as a cut in social security contributions, that allow the population to feel the fruits of anti-evasion efforts.”
In all, Greece’s debt-to-GDP ratio has declined by about 50 percentage points since its peak in 2020, and is down by around 27 percentage points relative to pre-Covid levels.
Moody’s estimates that it stood at 156.1% of GDP at the end of 2024 and project that it will decline to 148.3% and 140.6% in 2025 and 2026 respectively.
The country’s debt structure remains favourable, with an average term to maturity of 18.8 years, with all of the debt at fixed rates.
In addition, at the end of 2024, Greece prepaid 7.9 billion euro of its crisis-era debt in the Greek Loan Facility (GLF).
The Prime Minister announced in late 2024 that the country plans to make a 5 billion euro early repayment of GLF debt once again in 2025, after which Greece will have repaid around sixty-one percent of the outstanding loans under the GLF.
In the coming years, the country is aiming to prepay the debt that comes due in 2033-41.
