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Fitch upgrades Greece on impending bailout exit, debt sustainability

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Fitch upgrades Greece on impending bailout exit, debt sustainability

Fitch Ratings upgraded Greece's long-term foreign and local currency issuer default ratings to BB- from B with a stable outlook, as the country prepares to leave its bailout program under the European Stability Mechanism.

Greece is expected to exit the ESM program Aug. 20 with a deposit buffer of €24.1 billion following the disbursement of the final tranche of €15 billion in loans earlier this week. The Eurogroup of finance ministers estimates this buffer will cover sovereign financing needs for 22 months.

"Our estimates indicate that Greece could be fully funded until 2022, providing a significant backstop against any financing risks for a prolonged period," Fitch said. "This should in turn support market confidence and post-programme market access."

Accompanying debt measures should also improve Greece's general government debt sustainability, which is supported by budget surpluses, expected sustained GDP growth, legislated fiscal measures and reduced political risks, according to Fitch.

The rating agency forecasts Greece's primary fiscal surpluses to stay slightly under 3.5% of GDP until 2023 and to drop below 3% from 2024, from the "fiscal out-performance" of a 4% primary surplus in 2017.

General government gross debt is projected to drop to 123.3% of GDP by 2030 from 182.7% in 2018, Fitch said.

Fitch notes that Greece's economic expansion is "gathering momentum" with 2% growth expected in 2018 and 2.3% in 2019.

Greece's local political backdrop has also become "somewhat more stable" and its working relationship with European creditors has "substantially improved," Fitch said, lowering the risk of a sharp reversal of policy measures adopted under the ESM program.

"Nevertheless, future Greek governments are required to maintain primary surpluses for an exceptionally long time and this may pose political challenges," Fitch cautioned. "There may be some partial policy reversals in the future, or fiscal targets may be relaxed, as dialogue continues between Greece and its official creditors."