Fitch on Friday cut Greece’s credit rating to ‘CCC’ from ‘B’ saying lack of market access, tight liquidity and uncertainty over the timely release of aid from its official creditors are exerting pressure on government funding.
Fitch, Standard & Poor’s and Moody’s had all lifted Greece’s rating last year as the economy showed tentative signs of getting back on its feet after six-years of recession.
But the new leftist government’s standoff with its euro zone partners and the International Monetary Fund over reforms needed to resume remaining bailout funding have clouded the direction of future policy making, rendering the outlook uncertain.
“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,” the agency said.
Fitch said the standoff has damaged the confidence of investors and depositors, derailing the economy’s incipient recovery.
“The damage will take time to repair even if prospects for a successful programme completion improve over the coming days or weeks,” it said.
Fitch cut its economic growth forecast for Greece to 0.5 percent this year from 1.5 percent in January, citing the liquidity squeeze faced by firms due to increased government arrears to suppliers and bank funding strains.
It said a Feb. 20 accord between Athens and its official creditors to extend the country’s bailout programme by four months to end-June supports its base case scenario that Athens and its creditors will ultimately reach a compromise deal.
But progress since then has been slow and it remains unclear when the earliest disbursement of aid could take place and what would be required for this to happen.
Earlier on Friday Greece 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.
Fitch said that if Greece’s reforms are accepted, Athens would get closer to a partial disbursement of remaining bailout money.
“It is likely that the Eurogroup will want the Greek government to demonstrate they have implemented some part of the list before funds are disbursed. This pushes back the probable disbursement well into April at the earliest,” it said.