Standard and Poor's downgraded the credit rating outlook on Greece to 'negative' and said worsening economic activity would make it difficult for the government to make further spending cuts, which is crucial to secure the next disbursement under the international bailout program.
The outlook on the country's long-term sovereign credit rating was revised to 'negative' from 'stable', while the 'CCC/C' long- and short-term foreign and local currency sovereign credit ratings remained intact.
The 'negative' outlook reflects the potential for a downgrade if shortfalls in Greece's 2012 deficit and arrears targets established under the current European Union/International Monetary Fund (EU/IMF) program are not met by new funding or other relief from the Troika, the rating agency said in a statement on Wednesday.
Due to election-related delays in implementing budgetary consolidation measures and a worsening economy, Greece is likely to require additional financing for 2012 under the existing bailout program.
S&P forecast the GDP to contract 10-11 percent cumulatively during 2012-2013 compared to 4-5 percent contraction assumed by the EU/IMF Program.
If GDP contraction worsens beyond the program's assumptions, fiscal position will deteriorate further and Greece is likely to require additional financing of as much as 7 billion euros or 3.7 percent of GDP for 2012, according to the agency.
The troika, comprising the EU, IMF and the European Central Bank, concluded a review mission to Greece early this week and would return to Athens in September to continue discussions.
In a joint statement issued on Sunday, the creditors said, "The discussions on the implementation of the program were productive and there was overall agreement on the need to strengthen policy efforts to achieve its objectives."
They said the Greek authorities are committed to proceeding with determination in their work over the next month.
Troika's consent is required at each stage to obtain the 31 billion euros funding. Greece has pledged a series of economic reforms and spending cuts worth 11.5 billion euros for 2013 and 2014 to keep the bailout-deal afloat.
by RTT Staff Writer
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