DBRS Ratings GmbH (Morningstar DBRS) confirmed the Hellenic Republic’s (Greece) Long-Term Foreign and Local Currency – Issuer Ratings at BBB. At the same time, Morningstar DBRS confirmed Greece’s Short-Term Foreign and Local Currency – Issuer Ratings at R-2 (high). The trends on all ratings remain Stable.
KEY CREDIT RATING CONSIDERATIONS
The Stable trend reflects Morningstar DBRS’ view that the risks to the credit ratings are balanced. Economic and fiscal developments remained favourable over the past year. The Bank of Greece (BoG) estimates real GDP to have grown by 2.1% in 2025, driven by strong investment activity, rising private consumption, and higher tourist arrivals. Fiscal developments benefitted not only from cyclical tailwinds but also from structural reforms which raised tax compliance and, as a result, bolstered public revenues. Between Q4 2024 and Q3 2025, the general government budget balance posted a surplus of 2.6% of GDP. Strong fiscal results and high rates of economic growth led to a further decrease in the country’s still very high public debt ratio. General government gross debt declined to 149.7% of GDP in September 2025 from 158.6% in September 2024.
Looking ahead, the government’s Draft Budget 2026 projects a further decrease in the public debt ratio to 138.2% of GDP at end 2026 based on the expectations of continued strong nominal GDP growth, a sizeable primary surplus and further early repayments of outstanding government debt. While economic and fiscal tailwinds are likely to persist in 2026, the economic outlook is exposed to important downside risks such as an escalation of geopolitical tensions. It remains unclear whether the increased hostilities in the Middle East will result in a durable increase in the global cost of energy. Over the medium-term, maintaining a clear downward trend in the public debt ratio relies on recurring primary surpluses and Greece’s ability to sustain the economy’s recent growth momentum, particularly after the phase-out of the EU’s RRF grants in 2026.
Greece’s BBB credit ratings are underpinned by the improved financial condition of the domestic banking sector, the country’s credible policy framework, and its membership of the European Union (EU) and euro area. Successive Greek governments have implemented key reforms that strengthened governance, improved the country’s business environment, and underpinned debt sustainability. Greece’s credit ratings are nevertheless constrained by the still high public debt ratio, a comparatively low level of labour productivity, and the small size of its economy which renders it vulnerable to external shocks. Moreover, external imbalances such as the economy’s chronic current account deficit weigh on the credit profile.
CREDIT RATING DRIVERS
Morningstar DBRS could upgrade the credit ratings if one or a combination of the following occur: (1) the public debt ratio declines broadly in line with expectations over the next 1-2 years, and the ratio is projected to remain on a firm downward trajectory over the medium term on the back of strong fiscal results; or (2) continued implementation of reforms that boost investment, thereby improving longer-term growth prospects.
Morningstar DBRS could downgrade the credit ratings if one or a combination of the following occur: (1) a prolonged weakening of fiscal discipline or a materialization of contingent liabilities that puts the public debt ratio on a sustained upward trend; (2) a reversal in structural reforms; or (3) a significant deterioration in the Greek external position.
CREDIT RATING RATIONALE
Economic Growth is Projected to Remain Strong but Structural Challenges Remain
The Greek economy continued to grow at a strong pace over the past year. The BoG estimates real GDP to have expanded by 2.1% in 2025 on the back of strong domestic demand and rising tourist arrivals. Private consumption was supported by favourable labour market developments, characterized by steady employment growth and a further decrease in the unemployment rate (ILO definition) to 7.5% at end 2025 from 9.4% at end 2024. Moreover, inflows of FDI and Recovery and Resilience Plan (RRP) funds bolstered investment activity particularly with regard to residential and non-residential construction. The country is among the top EU performers when it comes to reaching key RRP milestones and absorbing RRP funds – an envelope of EUR 35.9 billion (15.2% of nominal GDP 2024) in grants and loans. Looking ahead, growth is projected to remain strong with the EC forecasting real GDP growth at 2.2% in 2026 and 1.7% in 2027. Private consumption is expected to be bolstered by continued employment growth and real wage gains on the back of easing inflationary pressures. Investment activity is likely to remain strong in 2026 but weaken thereafter as the disbursement of RRP grants comes to an end. The economic outlook is exposed to external downside risks such as an escalation of geopolitical tensions or another energy price shock. Potential high-for-longer global energy prices would likely reignite inflationary pressures and weigh on households’ purchasing power.
While the economy is forecast to grow at a higher rate than most other EU economies in coming years, it continues to face important structural challenges. Maintaining the recent increase in investment activity over the medium-term is likely to necessitate continued large inflows of foreign capital given the economy’s low domestic savings rate. Furthermore, the small size of the economy renders Greece vulnerable to external shocks. This applies particularly to tourism which remains a key industry in the country’s service-driven economy. Travel services accounted for a large 83% of total net service exports in 2024. Although Greece’s labour productivity has improved in recent years, it remains substantially below the levels in most other EU economies. According to Eurostat, nominal labour productivity per person employed in Greece amounted to only 70.1% of the EU27 average in 2023 (based on purchasing power standards). At the same time, Morningstar DBRS takes the view that the implementation of structural reforms in recent years have enhanced Greece’s competitiveness and will likely support productivity growth over the medium-term. These factors explain the positive qualitative adjustment to the Economic Structure and Performance building block assessment.
The Government’s Primary Surplus is Likely to Remain Large
Fiscal developments remain strong as the government is likely to continue to post sizeable primary surpluses. After registering a general government primary budget surplus of 4.8% of GDP in 2024, interim figures for 2025 point to another strong fiscal outcome. On a four-quarter moving sum basis, the primary budget surplus amounted to 5.2% of GDP between 2024 Q4 and 2025 Q3, compared to a target of 3.6% for full year 2025 which had been published in the Draft Budget 2026 in October 2025. The actual headline budget surplus between 2024 Q4 and 2025 Q3 stood at 2.6% of GDP compared to a target of 0.6% for full year 2025. This strong fiscal performance was driven by high revenue growth. Total general government revenues rose by 9.1% year-on-year during the first nine months of 2025, exceeding the 5.1% increase in total expenditures. Public revenues benefitted not only from cyclical tailwinds but also from structural reforms which improved tax compliance such as the introduction of a digital labour card or the automatic transmission of retail sales data from Point of Sales terminals to tax authorities.
Looking ahead, the government’s Draft Budget 2026 projects a decrease of the primary surplus to a still large 2.8% of GDP in 2026 and a modest deficit of 0.1% in the headline balance. This moderate weakening results primarily from the adoption of expansionary measures such as personal income tax cuts, increases in pensions and higher investment spending. Furthermore, defence spending is planned to be increased from 2.3% of GDP in 2025 to 2.6% in 2026. Although spending pressures are likely to increase in coming years particularly with regard to defence, population ageing, and the climate transition, Morningstar DBRS expects the government’s fiscal stance to remain prudent in coming years. The persistent overperformance of fiscal targets in recent years along with the structural improvement in fiscal revenues warrants a positive adjustment in the Fiscal Management and Policy building block assessment.
Greece’s Public Debt Ratio is Very High but on a Downward Trend
Greece’s public debt-to-GDP ratio has declined markedly over the past years but remains the highest across euro area member countries. General government gross debt stood at 149.7% of GDP in September 2025, down from 158.6% a year earlier, whereas the average debt burden for the entire euro area amounted to 88.1%. Looking ahead, the government’s Draft Budget 2026 projects gross debt to decline to 138.2% of GDP by end 2026 based on the expectations of strong nominal GDP growth, a sizeable primary surplus and further early repayments of outstanding government debt, particularly with regard to the Greek Loan Facility (GLF) loans. While the still high debt burden remains an important credit weakness, refinancing risks are largely mitigated by a very favourable debt structure and the government’s large cash reserves. The weighted average maturity of general government debt stood at 18.4 years in December 2025 as a large share of debt comprises concessionary lending from the official sector (e.g. ESM, EFSF) at very long maturities. Cash reserves of the general government stood at EUR 39.6 billion (15.9% of GDP 2025). Furthermore, 100% of Greece’s debt is held at fixed interest rates (after hedging). These factors underpin our positive qualitative adjustment in the Debt and Liquidity building block assessment. Over the long-term, maintaining Greece’s debt sustainability relies primarily on its ability to sustain primary surpluses and on solid nominal GDP growth rates, as the official sector debt is gradually replaced with market financed debt exposing Greece to increased market volatility. Downside to public finances emanate from government guarantees which amounted to EUR 25.1 billion (10.0% of GDP 2025), around 68% of which relate to the Hercules Asset Protection Scheme.
Current Account Deficit is Projected to Remain Large
Greece’s large current account deficit and its elevated negative net international investment position (NIIP) weigh on the country’s credit profile. Although Greece’s current account deficit narrowed from 7.2% of GDP in 2024 to an estimated 5.7% in 2025 on the back of lower energy import prices, it remains much larger than in pre-pandemic years. This deterioration can primarily be ascribed to the strengthening in domestic demand over the past years particularly with regard to investment activity which contributed to rising import volumes. The latter impact more than offset the increase in tourism service exports. The deficit in the goods balance is estimated at 13.5% of GDP in 2025 compared to a surplus of 9.1% in the services balance. Looking ahead, the BoG forecasts the current account deficit to remain elevated at 5.7% of GDP in 2026 and 5.8% in 2027. At the same time, Morningstar DBRS considers Greece’s external position to be more resilient now than in the past as a substantial part of the current account deficit was financed by non-debt creating inflows (e.g. equity, investments grants). Gross external debt of the Greek economy amounted to an albeit still high 238% of GDP in September 2025, down from 247% in December 2019. The economy’s net international investment position amounted to a negative 138% of GDP in September 2025. However, a large portion of the external liability position relates to public debt owed to official creditors with low interest costs and long maturities.
Financial Condition of the Banking Sector Has Improved
The resilience of the Greek banking sector has improved markedly in recent years on the back of government support measures and the economy’s recovery. Banks’ asset quality benefitted from the government-sponsored Hercules Asset Protection Scheme which offloaded legacy NPLs from banks’ balance sheets. As a result, the NPL ratio of domestic banks declined to 3.6% in September 2025 from 40.6% in December 2019. Banks are largely funded by domestic deposits and have strong liquidity buffers with both the Liquidity Coverage Ratio (Q3 2025: 207.2%) and the Net Stable Funding Ratio (Q3 2025: 136.2) clearly exceeding the minimum regulatory requirement of 100%. Furthermore, banks’ profitability in recent years was supported by a pick-up in non-financial corporate loan growth, a temporary widening in the net interest margin, revenue diversification and cost efficiency efforts. According to the EBA, the return on assets stood at 1.4% in Q3 2025. The increase in earnings, in turn, helped bolster banks’ capital buffers with the CET 1 ratio standing at 16.1% in Q3 2025, up from 12.6% four years earlier. At the same time, the quality of banks’ capital base is still weak as deferred tax credits (DTC) constitute a large, though declining, part of banks’ regulatory capital. In June 2025, DTC accounted for 44.6% of CET1 capital. The DTC are planned to be gradually amortised by 2034, faster than initially expected.
Political Stability is Likely to Remain High
Greece’s political environment has been characterized by a high degree of political stability in recent years. The government led by New Democracy and Prime Minister Kyriakos Mistotakis has commanded a strong majority in parliament since the 2023 parliamentary election. This, in turn, allowed for the adoption of structural reforms and the fulfillment of targets and milestones of its RRP, the aim of which is to boost economic resilience. The next parliamentary elections are scheduled to be held until July 2027. Morningstar DBRS does not expect major policy reversals after the elections as there is a broad consensus among main political parties on key policy topics. Greece’s institutional quality continues to suffer from governance deficiencies such as still long duration of court proceedings. The World Bank’s governance indicators for Greece are weaker than those of most EU peers, particularly with regard to the Rule of Law indicator. However, Morningstar DBRS takes the view that institutional quality in coming years is likely to benefit from ongoing judicial reforms (e.g. revision of judicial map, cadastre). The improvement in the political environment and the government’s commitment to address Greece’s long-standing challenges warrant a positive qualitative adjustment to the Political Environment building block assessment.
