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Fitch: Greece Budget Surplus Shows Continued Fiscal Commitment

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Greeces second-consecutive budget surplus demonstrates the authorities continuing commitment to fiscal consolidation, Fitch Ratings says. This supports Fitchs  expectation of improving debt sustainability, although how far and how fast public debt will fall will largely be determined by the nature of the debt relief currently under discussion by Greeces international creditors.

ELSTAT said on Monday that Greece had posted a headline budget surplus worth 0.8% of GDP in 2017, up from 0.6% a year earlier. Greeces budget deficits in the 2014 and 2015 were 3.6% and 5.7%, respectively. Last years primary surplus was 4.0% of GDP.

This represents significant fiscal outperformance. Fitch had estimated a 2017 primary surplus of 1.9% of GDP, itself higher than the European Stability Mechanism (ESM) programme target of 1.75%, due to higher-than-budgeted revenues and expenditure restraint. This is consistent with the rating agencys view that ESM programme compliance, reduced political risk, further fiscal measures and sustained GDP growth will underpin improving debt sustainability. This was reflected in Fitchs upgrade of Greeces sovereign rating to B in February.

"Greece remains one of the few eurozone countries whose fiscal adjustment is structural rather than chiefly cyclical. The Greek Finance Ministry said that the 2017 outturn showed that post-programme targets are feasible. We think primary surpluses may fall below these targets beyond 2020, but we still believe gross general government debt (GGGD) peaked in 2016 and will fall more rapidly from next year, reaching 137% of GDP by 2025, assuming annual average nominal GDP growth of 3.5%, but not factoring in any future official sector debt relief" says Fitch Ratings, adding that "Our baseline assumption sees GGGD falling further, to 132.8% of GDP in 2026. This would still be higher than the current level for Italy - the eurozones second most-indebted sovereign - although the concessional nature of Greeces public debt means that debt servicing costs are low".

"Technical work by the eurogroup on a mechanism for linking debt post-programme relief to growth targets is at an advanced stage, and eurogroup president Mario Centeno said last week that Greeces eurozone creditors and the IMF were getting closer to agreeing on official sector debt relief. The eurogroup will discuss debt relief options tomorrow at a meeting in Sofia. We do not anticipate haircuts to the official debt stock, but the prospect of other substantial debt relief measures is reflected in the Positive Outlook on Greeces sovereign rating" the agency rating concludes.

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