S&P Ratings Services cut its long-term sovereign credit rating on Greece to ‘CCC’ from ‘CCC+’, citing the likelihood of the nation defaulting on its commercial debt within the next 12 months in the absence of a bailout deal with its official creditors.
The agency said the ‘C’ short-term rating remained unchanged, and the outlook is negative, given the risk of a further worsening of liquidity for the sovereign, its banks, and the economy. S&P also hinted that it could lower the rating again within a year if the likelihood of a distressed exchange of Greek commercial debt increases further.
The Hellenic Republic delaying its payment to the International Monetary Fund (IMF) last Friday, June 5, appears to demonstrate that the Greek government is prioritizing pension and other domestic spending over its scheduled debt service obligations.
“In our view, without a turnaround in the trajectory of nominal GDP and deep public-sector reform, Greece’s debt is unsustainable. The downgrade reflects our view that in the absence of an agreement with its official creditors, Greece will likely default on its commercial debt within the next 12 months,” said Frank Gill, analyst at S&P.
S&P noted that Greece is currently being financed by the European Central Bank at a level exceeding 60 percent of its GDP. A run in on the banks could lead the Greek government to impose capital controls and issue a parallel currency to the euro.
Gill does not expect any potential agreement that could be struck over the next fortnight to help the nation service its debt beyond September.
The government has decided to consolidate this month’s EUR 1.6 billion in debt servicing owed to the IMF, an official creditor into a single payment on June 30.
The analyst does not consider it likely that there would be any official debt relief or more substantial financing agreed to in the next few days. In his view, this implies that confidence and investment activity will remain weak and growth prospects muted.
The material has been provided by InstaForex Company – www.instaforex.com