ANKARA
Fitch Ratings has upgraded its credit rating for Greece, the credit agency announced in a note released Wednesday.
Fitch upgraded the country's credit rating to CCC from CC. A CCC rating still indicates considerable default risk however.
"The 14 August agreement reached between Greece and the European Institutions on the framework for a third official bailout programme has reduced the risk of Greece defaulting on its private sector debt obligations," the note said.
"An initial disbursement of about €23 billion ($25.4 billion) is expected this week and will ease the acute liquidity strain of recent months, covering the repayment of €3.2 billion ($3.5 billion) of bonds held by the Eurosystem maturing on August 20 as well as a European Financial Stabilisation Mechanism bridging loan maturing in September," the note said.
However, the risks to the program's success remain high, Fitch warned.
"It will take some time for trust to be restored between Greece and its creditors, which increases the risk of delayed program reviews. Meanwhile, the political situation in Greece remains unpredictable," the note said.
Political issues still cloud the outlook, according to Fitch. The possibility of a split within the ruling Syriza coalition, and eventual snap elections, adds uncertainty to the outlook.
The economic outlook is also uncertain, Fitch explained. "The [bailout deal] targets are ambitious and pose a risk to Greece's economic performance. The latter is already likely to be extremely weak in the second half of the year due to the banking system shutdown that followed the expiry of the previous bailout programme." But Fitch noted that the provision of €25 billion ($27.7 billion) in the bailout terms to recapitalize the banks should be sufficient to get Greek banks operating normally again.
Fitch also cited uncertainty about the role of the International Monetary Fund as a destabilizing factor.
"The role of the IMF is more uncertain than in previous programs. The Fund states that it expects to remain involved in the program but only if 'significant' debt relief is forthcoming. Discussions on debt relief are slated for the first programme review (October) although there may yet be disagreements between the IMF and Europe as to the ambition of the debt relief on offer," said the note.
But Fitch does not expect principal haircuts on the official debt stock given the political sensitivities around this issue.
