Fitch downgrades Greece
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Fitch Ratings has downgraded Greece’s sovereign debt to BBB- in the wake of renewed fears for its ability to handle its debt.
The ratings agency says the downgrade from BBB+ reflects the intensification of fiscal challenges the nation faces. This week its sovereign debt has come under further scrutiny after the International Monetary Fund sent a delegation to Athens to help arrange an austerity package.
Fitch says the downgrade reflects ongoing uncertainties about the government’s financing strategy in the context of increased capital market volatility. It says: “[Fitch] reiterates the lack of clarity regarding the mechanism for timely external financial support may have hindered Greece’s access to market finance at affordable cost and hence further undermined confidence in the capacity of the government to meet its fiscal targets.”
Greece has yet to put together a definite package to speed up its economic rescue. As a result its bond yields jumped to 12-year highs of 7.51 per cent.
Fitch says the sharp rise in interest rates faced by the Greek government this year, in combination with a deterioration in the outlook for economic growth, will make it harder for the government to achieve its fiscal targets of reducing the deficit to 8.7 per cent of GDP this year and ensuring that public debt peaks at just over 120 per cent of GDP in 2010 and 2011.
It says: “Pressures on the banking system underline the adverse spill-over from sovereign risk concerns on the wider economy, while contingent liabilities from the banking sector will increase as the government provides banks with increased guaranteed funding.”
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