Standard & Poor’s Ratings Services on Tuesday lowered its outlook on Greece’s long-term credit rating, saying that the financially troubled nation will likely need further aid from its international lenders amid a worsening economy and delays implementing harsh austerity measures.
The ratings firm downgraded Greece’s long-term sovereign credit rating outlook to “negative” from “stable.” Its rating remained at “CCC,” well into “junk” status.
Greece’s economy is worsening, so it will likely need as much as 7 billion euros (US$8.7 billion) in additional financing, or 3.7 percent of its GDP, from the EU and the IMF, S&P said.
The move to lower the outlook reflects the possibility that S&P will downgrade Greece’s rating if the nation fails to get additional funding from other eurozone countries and the IMF.
The firm projects that Greece’s GDP will shrink by 10 or 11 percent over this year and next. The EU and IMF have assumed GDP will slow only between 4 percent and 5 percent during that period.
Greece has received two bailouts totaling 240 billion euros from other eurozone governments and the IMF after bond investors would no longer lend it money at affordable rates. In return for the money, Greece is supposed to cut its budget deficit and reform its economy. However, the economy has continued to contract and the new government of Greek Prime Minister Antonis Samaras has said it wants more time to meet some of the conditions.
Even so, S&P anticipates that Greece’s government will find it difficult to make the additional cuts required to satisfy the conditions to get its next slate of funding from the EU and IMF.
“We see the likelihood of shortfalls, owing to election-related delays in the implementation of budgetary consolidation measures for the current year, as well as the worsening trajectory of the Greek economy,” S&P said.
International bailout creditors are closely scrutinizing the country’s lagging austerity and reform program, and a negative report next month would likely lead to the vital rescue loans being halted.