Commitment is key to success of Recovery Fund, DBRS report says

The funds from the Next Generation European Union programme are a significant opportunity for Greece to implement additional reforms, to invest in the future and to grow its economy in the medium-term, after its contraction by 8.2 pct in 2020 due to the coronavirus pandemic, DBRS said on Monday.

In a report, the credit rating agency said that: “ Overall, DBRS Morningstar expects the RRF could directly strengthen Greece’s capital base through economic infrastructure development and its labour potential through expenditure on reforms that improve employment skills and social cohesion. Nevertheless, DBRS Morningstar notes that due to its innovative nature the implementation of this new EU instrument could be challenging and will require strong national ownership of the reform agenda from the government and agility on the part of the public administration,” said Spyridoula Tzima, Assistant Vice President of Sovereign Ratings at DBRS Morningstar.

“For the efficient deployment of the EU resources strong government commitment will be needed along with increased administrative capacity to deal with the volume of funds. Overall, the positive impact of the NGEU on the Greek economy will depend on smooth disbursement approvals and the allocation of resources to both public and private investment and to reforms that will support strong and sustainable growth. In advance of details of Greece’s final National Recovery and Resilience Plan (RRP) expected this week, according to the draft outline, grants will be allocated to four pillars: the green transition; the digital transition; promoting employment, skills, and social cohesion; and private investment and economic and institutional transformation.

“Greece’s economy never fully recovered from the global financial crisis, and the COVID-19 pandemic represents yet another costly setback. After growing at an annual average rate of 1.6% between 2017 and 2019, real GDP contracted by 8.2% (NSA) in 2020. This severe economic contraction reflects the restrictive measures put in place to control the spread of the virus and the near collapse of the tourism sector that is an important source of income for the Greek economy. Notwithstanding the sharp economic contraction, DBRS Morningstar views that the EU’s Next Generation funds (NGEU) constitute a significant opportunity for Greece to implement additional reforms, to invest in the future and to grow its economy over the medium term. Greece will be one of the largest beneficiaries of the EU’s Recovery and Resilience Fund (RRF), eligible to receive EUR 30.5 billion of grants and loans over the next 5 years. Out of the EUR 30.5 billion, EUR 17.8 billion (approximately 10% of 2019 GDP) are grants and EUR 12.7 billion (7%) are loans that will be available until 2026.”