Moody’s forecasts one of the largest reductions in Greek debt worldwide

The strong showing by New Democracy in last Sunday’s election significantly increases the likelihood that it will form a government again following the new elections to be held in late June, according to an analysis by the credit rating agency Moody’s.

This means, he adds, that there will be continuity in fiscal and economic policy, which is positive for Greece’s creditworthiness (credit positive).

As he notes, maintaining a focus on improving the business environment and the health of the banking sector, along with the implementation of milestones and reforms under the national recovery plan, will support economic growth.

«Combined with the commitment to fiscal adjustment and an increase in primary surpluses, maintaining current fiscal and economic policies improves the prospects for a significant reduction in the burden of Greece’s public debt,» it states.

Moody’s forecasts that Greece will see one of the largest debt reductions worldwide, with general government debt falling below 150% of GDP in 2025 from 171.3% in 2022, thanks to the outlook for significantly higher nominal GDP growth in the coming years.

It also notes that the Greek economy rebounded strongly after the pandemic, with real GDP growing by 5.9% in 2022 and 8.4% in 2021, following a decline of 9% in 2020.

Although Greece's debt-to-GDP ratio will remain very high in the coming decades,

According to Moody’s, the burden of Greek debt has become significantly more sustainable—even though its ratio to GDP will remain very high over the coming decades— thanks to the very favorable repayment terms on Eurozone loans and the substantial debt relief provided by its Eurozone creditors since 2017.

Nearly 80% of the central government’s debt is owed to Eurozone institutions, including the European Central Bank and other Eurozone central banks, the agency notes.

«The result is that Greece’s interest payments as a percentage of government revenue are low and will remain low for an extended period, even when taking into account the fiscal impact of the pandemic and the return to regular issuance in the capital markets.».

With this ratio at 5.5% – 6%, Greece’s ability to repay its debt will remain stronger than Italy’s, the agency notes.