Greece climbed another "step" of investment grade, with the credit rating agency DBRS upgrading the Greek government's creditworthiness to BBB with a stable outlook, from BBB low with a stable outlook.

This is Greece's second upgrade within investment grade after that of the German firm Scope last December (BBB with stable prospects).

"The upgrade reflects Morningstar DBRS' view that past risks in the banking system have receded, along with continued outperformance of fiscal targets," the rating agency said in its rating.

The agency also states:

For banks

Greek banks have improved their fundamentals, are more resilient and are well positioned to provide credit to the economy, even after the end of the Recovery Fund (Next Generation EU).

This reflects lower risks than in the past, with a significant decline in the NPL ratio, which is now close to the European Union (EU) average, coupled with the expectation that deferred tax credits (DTCs) will decline faster than initially expected.

Moreover, supported by the recovery of the Greek economy and strong investor interest, the Hellenic Financial Stability Fund (HFSF) reduced its holdings in systemic banks by loosening the link between the state and sector banks.

Morningstar DBRS also notes that the public debt-to-GDP ratio should have fallen by almost 10 percentage points from 2023 to 154% in 2024.

Fiscal revenues continue to exceed targets

Fiscal revenues continue to exceed fiscal targets with increasing primary surpluses, which are expected to remain high going forward. This is likely to facilitate a further significant reduction in the public debt-to-GDP ratio, which is projected to fall to below 140% by 2027 by the government.

Reliable policy framework

The stable rating trend reflects Morningstar DBRS' view that risks to Greek debt are balanced. In particular, it states:

Greece's creditworthiness is underpinned by a credible policy framework, thanks to EU and euro area membership and by the implementation of institutional and economic reforms in the past that have strengthened the economy's resilience.

Greece's economic outlook appears to be significantly boosted by governance, investment, exports and reforms, supporting public debt sustainability.

The implementation of structural reforms remains on track, which, together with higher investment supported by EU funds, could improve the country's business environment, boost productivity and help narrow the investment gap with other euro area countries.

How much will GDP grow?

As of 2021, Greece has higher growth than the Eurozone average and this is likely to continue over the next two years. GDP is estimated to have grown by 2.2% in 2024 and will grow by 2.3% in 2025, according to the Greek Ministry of Economy and Finance.

Moreover, there is a strong political commitment to maintaining a prudent fiscal strategy, which is reflected in the rapid improvement of the primary surplus despite the multiple shocks the economy has faced since 2020.

The debt ratio is still high

Nevertheless, credit ratings are constrained by the still high public debt ratio, the small size of the economy and the persistent current account deficit.

The conditions for a new upgrade of creditworthiness

Morningstar DBRS notes that it could upgrade its rating if one or a combination of the following occurs:

• (1) a further significant reduction in the government debt ratio supported by sustained primary surpluses, or

• (2) continued implementation of investment-enhancing reforms, thereby improving long-term growth prospects.

On the other hand, it states that it could downgrade creditworthiness if one or a combination of the following occurs:

• (1) a prolonged weakening of fiscal discipline or the implementation of potential liabilities that put the government debt ratio on a sustained upward trend;

• (2) a reversal of structural reforms, or

• (3) a significant deterioration in Greece's external position.