Her decision European Central Bank supports the sustainability of the Greek public debt, the credit rating agency states in its report Fitch.
The ECB announcement that will be able to continue buying Greek bonds until the end of 2024 reduces the risk of large increases in government borrowing costs as the emergency pandemic program (PEPP) is coming to an end, the house notes.
The ECB confirmed last Thursday that from the end of March 2022 will stop the net bond purchases under PEPP, but extended the period for reinvesting bonds maturing by one year until the end of 2024.
The ECB also stated that in cases of market pressures related to the pandemic, PEPP reinvestments “will be able to be flexibly adjusted for time, asset forms and territories”, including Greek bonds “beyond maturity reinvestment”.
Fitch notes that under the PEPP, the ECB had bought Greek bonds worth 34.9 billion euros by the end of November, an amount approaching the percentage of Greece in the share capital of the ECB (2%) in the total amount of PEPP (1.85 trillion euros).
These markets, he adds, contributed to the reduction of Greek debt interest rates, with the yield on 10-year securities falling to about 1.3% from over 2% in May 2020.
He also notes that tGreek debt sustainability is supported by other factors, such as the high cash reserve which is projected to be close to 18% of GDP at the end of the year and which, according to Fitch estimates, would cover the costs of debt service in 2022 . The cost of servicing the Greek debt (in absolute terms and in comparison with other countries that have a corresponding debt) is low and the times when the securities expire are manageable.
In addition, Fitch notes, the Greek authorities have precautionarily managed the repayment schedule, whereas a recent liability management exercise reduced repayments in the period 2023-2025 by approximately € 1.1 billion. The average duration of Greek debt is one of the longest for government bonds, at about 19 years.
Fitch previously estimated that a large, permanent increase in market interest rates would increase the debt ratio, but only by about 4.5 percentage points in five years.
Despite these factors that lighten its weight, the very high public debt of Greece is a weakness for its debt, the house says, estimating that the debt-to-GDP ratio in 2021 decreased – from the high level of 206.3 % of GDP in 2020 – at 197.3%, a level that is the third highest among the countries rated by Fitch.
“Lower deficits and sustainable economic growth will support debt reduction”, notes Fitch, forecasting GDP growth of 8.3% this year which will continue in 2023 and 2024 at rates of 4.1% and 3.6%, respectively, as the use of the Recovery Fund resources will accelerate, with the but debt remains high, just below 188% of GDP in 2023.
Fitch also believes that ECB will continue to be flexible to avoid a sharp impact on the financing and liquidity of Greek banks, while noting that it believes that the ECB can extend the exceptional acceptance of Greek government bonds as collateral beyond June.
The financing and liquidity profiles of Greek banks have improved structurally in recent years, according to the house, enhanced by the healthy growth of their customers’ deposits and their better access to lending.
The next assessment of the Greek debt by Fitch will take place on January 14“Greater confidence in the return of government debt / GDP to a steadily declining post-COVID-19 shock, continued improvement in the asset quality of systemically important banks and better medium-term growth and performance prospects could lead to positive evaluation “, the house states.