by George Zairis*
It was back in 2010 when Greece managed to succeed in becoming the first euro-zone member to be downgraded to junk by credit rating agencies after decades of lack of fiscal discipline and due to its poor economic management. After 13 years dedicated to the repair of public finances and with big sacrifices made by the Greek society as a result of the austerity measures, Greece has achieved a commendable milestone. The country has restored its investment grade by one of the ECB recognized agencies, DBRS Morningstar as they upgraded the economy from BB (high) to BBB (low). The restoration of investment-grade status reaffirms the country’s credibility in the global financial arena, instilling confidence among investors and opening the door to enhanced access to capital markets.
For more than a decade, the Greek economy became a synonym of the sovereign debt crisis in the EU and the journey to recovery was challenging from both a fiscal and monetary perspective. Despite the fact that the journey was difficult, numbers never lie, and even Greece’s harshest critics must realize that investment-grade status is not only a symbolic achievement but carries significant economic benefits.
To begin with, Greece will have access to capital and will be able to borrow at more favorable terms and with lower interest rates. Foreign investors and multinational companies will also be attracted due to the more stable economic landscape. Microsoft, Amazon, and Google are just a few examples of companies which are investing and starting operations in Greece. These foreign direct investments (FDI) contribute to the overall prosperity of the country by creating new jobs, stimulating economic activity and boosting innovation. Additionally, the country will benefit from lower borrowing costs due to reduced credit risk with lower interest rates on government bonds and last but not least, an improved sense of confidence will lead to increased spending and investment within the country.
But which are the main pillars that have been instrumental in constructing the pathway to economic recovery for the Greek economy?
Notwithstanding the adverse economic circumstances prevailing in 2022, the Greek economy demonstrated remarkable resilience by achieving a growth rate of 5.9%. This growth was underpinned by continuous enhancements in the labour market, boosted by robust private consumption and investment, and further buoyed by a resurgence in the tourism sector. Greece managed to fully repay its IMF (International Monetary Fund) loans and also prepay EUR 2.7 billion of the Greek Loan Facility (GLF loans) in 2022. Additionally, NPL (Non-performing loans) ratio fell to 8.8% at the end of Q1 2023 from 12.1% in Q1 2021, down by a remarkable 40 % since its peak in June 2017. Inflows from FDI reached EUR 7.2 billion which is a new record for the past two decades. Greece’s debt-to-GDP ratio declined by 20% reaching 171.3% in 2022 in comparison with the peak of 206.4% of GDP in 2020, due to the improved fiscal outcomes and high nominal GDP growth. On top of that, the smooth implementation of the Recovery and Resilience Plan (Greece 2.0) continues boosting investments and constitutes a core pillar of sustainable growth.
It is an undeniable fact that Greece still has a long way to go until the ‘‘Big-3’’ of the ECB recognized agencies decide the future of the country’s investment grade, but still the fundamental base of the recovery is already in place. S&P Ratings is scheduled to announce its decision on October 20th, while Fitch Ratings will follow suit on December 1st. In the case of Moody’s, known for its rigorous approach, there remain three further upgrades that need to be completed. One undeniable certainty remains, Greece must ensure it adheres consistently to the path of sustained reforms and fiscal consolidation.
*Manager in the Business Advisory division of Grant Thornton Luxembourg specializing in providing advisory services to EU & Public Institutions