Global ratings agency Moody’s upgraded the Government of Greece’s long-term issuer rating from Ba1 to Baa3 on Friday, shifting the country’s economic outlook from positive to stable.
The upgrade signals growing international confidence in Greece’s economy, driven by faster-than-expected improvements in public finances, robust institutional reforms, and a stabilizing political environment. According to the agency, Greece’s sovereign credit profile now demonstrates heightened resilience to potential future economic shocks.
Moody’s focused on Greece’s debt reduction and tax compliance
A primary driver behind the upgrade is the significant reduction in Greece’s national debt. The country’s debt-to-GDP ratio has plummeted by roughly 50 percentage points since its 2020 peak. Moody’s estimates the ratio stood at 156.1% at the end of 2024 and projects a further decline to 140.6% by late 2026.
Greece’s debt structure remains highly favorable too, carrying an average maturity of 18.8 years at fixed interest rates. The government is also aggressively paying down crisis-era obligations. Following a €7.9 billion prepayment of Greek Loan Facility (GLF) debt late last year, Prime Minister Kyriakos Mitsotakis outlined plans to repay another €5 billion ahead of schedule.
Revenue generation has consistently outperformed baseline expectations without increasing the tax burden on citizens either, Moody’s noted. In 2024 alone, Greece collected an additional €2 billion in tax revenue through stringent anti-evasion measures and an ongoing digitalization strategy. Concurrently, the labor tax wedge has decreased by approximately 4.5 percentage points since 2019, maintaining economic competitiveness while funding modest tax reductions.
The recovery of Greece’s banking sector
The health of Greece’s banking sector factored heavily into Friday’s decision by Moody’s. Asset quality is steadily converging with European Union averages. Non-performing loans (NPLs) dropped to about 2.9% by December 2024, largely due to portfolio sales and securitizations facilitated by the expansion of the Hellenic Asset Protection Scheme, known as Hercules III.
While banks are generating strong organic capital and improving profitability, Moody’s noted that the sheer volume of NPLs now held by credit servicers remains a slight drag on broader economic growth.
Despite the upgrade, the agency adjusted Greece’s outlook to stable, acknowledging several long-term challenges. Greece’s debt-to-GDP ratio will remain among the highest rated by Moody’s through the end of the decade. Additionally, adverse demographic trends pose continuing headwinds to long-term economic growth, and the current cyclically strong growth may cool once the absorption of EU Recovery and Resilience Fund (RRF) resources ends.
Environmental considerations also play a role in the nation’s economic trajectory. Moody’s highlighted Greece’s high exposure to physical climate risks, particularly wildfires and water stress, which could strain government finances. However, solid financial support from the EU for green transitions mitigates these vulnerabilities.
Against a backdrop of 2.3% real GDP growth recorded in 2023, the government’s capacity to maintain substantial primary surpluses, projected at 2% to 2.5% of GDP over the medium term, secures the upward rating trajectory, Moody’s said. Greece also appears uniquely insulated from certain regional pressures; by consistently meeting the NATO target of spending 2% of GDP on defense, the country avoided the backlog of military underinvestment currently plaguing other EU member states.
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