Ratings firm Fitch Ratings Ltd on Friday cut Greece’s credit rating amid worries that the eurozone country is running perilously close to defaulting on its sovereign debt.
Fitch lowered Greece’s rating by two notches to the high-risk level of “CCC” from “B,” but said that it nevertheless expected the government would survive its cash squeeze.
“Lack of market access, uncertain prospects of timely disbursement from official institutions, and tight liquidity conditions in the domestic banking sector have put extreme pressure on Greek government funding,” Fitch said in a statement.
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“We expect that the government will survive the current liquidity squeeze without running arrears on debt obligations, but the heightened risks have led us to downgrade the ratings,” it said.
The rating downgrade came as the new anti-austerity Greek government raced to reach a deal with its EU and IMF creditors by next month before state coffers run dry.
Greek government officials said the country has sent its creditors a long-awaited list of reforms with a pledge to produce a small budget surplus this year in the hope that it will unlock badly needed cash.
An eurozone official said the EU and IMF were to start discussing the list later on Friday, but a Greek official said the examination was to begin yesterday.
Athens has not indicated whether the latest list will contain a more far-reaching reform program than a previous list of seven reforms on broad issues ranging from tax evasion to public sector reforms, which failed to impress lenders.
The new list includes measures to boost state revenues by 3 billion euros (US$3.27 billion) this year, but will not include any “recessionary measures” like wage or pension cuts, a government official said.
The list estimates a primary budget surplus of 1.5 percent for this year — below the 3 percent target included in the country’s existing EU/IMF bailout — and growth of 1.4 percent, the official said.
Athens needs to show its creditors it is committed to structural reforms and that the measures will not derail its budget. Though Athens remains at risk of bankruptcy without fresh aid, publicly the mood in talks between Greece and its lenders has improved in recent days after weeks of acrimony that had raised the risk of a Greek eurozone exit.
However, Fitch said the damage from Greece’s crisis would take time to repair.
“The damage to investor, consumer and depositor confidence has almost certainly derailed Greece’s incipient economic recovery,” the ratings firm said.
“Liquidity conditions faced by firms will have worsened substantially, in our view, due to increased government arrears to suppliers and bank funding strains,” it said.
Fitch slashed its growth forecast for this year to 0.5 percent, from 1.5 percent projected in January and 2.5 percent in December.
Additional reporting by Reuters
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