Standard & Poor's Ratings Services said today that it revised the outlook on the long-term sovereign credit rating on the Hellenic Republic (Greece) to negative from stable. At the same time, we affirmed the 'CCC/C' long- and short-term foreign and local currency sovereign credit ratings.
The negative outlook reflects the potential for a downgrade if shortfalls in Greece's 2012 deficit and arrears targets established under the current EU/International Monetary Fund (IMF) program (EU/IMF Program) are not met by new funding or other relief from members of the Troika (the EU, European Central Bank, and IMF). We see the likelihood of shortfalls, owing to election-related delays in the implementation of budgetary consolidation measures for the current year, as well as the worsening trajectory of the Greek economy. We project GDP will contract by 10%-11% cumulatively during 2012-2013, versus the negative 4-5% assumed by the EU/IMF Program for 2012-2013.
In our opinion, the deepening contraction in Greek GDP beyond the EU/IMF Program's assumptions and the related worsening of the fiscal position imply a high likelihood that Greece will require additional financing of as much as €7 billion (3.7% of GDP) for 2012. This takes into account a fiscal deviation of at least €3 billion (1.5% of GDP) and IMF year-end arrears targets, which imply the need to pay arrears down by about €4 billion or 2% of GDP. Our estimate of additional financing needs could, however, be reduced if arrears or deficit targets are relaxed.
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