Fitch: Greece IMF bundling highlights extreme liquidity pressure; No direct implications for Greece's 'CCC' sovereign rating
Greece's decision to bundle four payments due to the IMF this month highlights the extreme pressure on government funding, Fitch Ratings says. It does not have direct implications for Greece's 'CCC' sovereign rating.
The risk that Greece misses its larger IMF payment at end-June cannot be discounted. The prospect of fiscal disbursements from Greece's official creditors is highly uncertain. The Greek government has not accepted the proposals presented by the institutions (the European Commission, European Central Bank, and IMF) this week. If the two sides do agree a deal, it will meet political opposition from elements of Syriza most hostile to the institutions' proposals for pensions and public sector wages. Time constraints mean we expect that an agreement would take the form of a further extension of Greece's existing programme beyond end-June and partial disbursements, conditional on Greece demonstrating its commitment to its terms. These funds would primarily be used to meet redemptions, which will rise sharply in July and August as bonds held by the Eurosystem fall due, as well as enabling Greece to fund a small ongoing deficit. Missing the larger end-June payment to the IMF would be credit negative. If no outline agreement between Greece and the institutions were in place, it would increase the risk that the ECB restricts Emergency Liquidity Assistance (ELA) to Greek banks. This may ultimately lead to restrictions on the banking sector to reduce liquidity strains, including capital controls. The risk of capital controls is reflected in our 'B-' Country Ceiling for Greece, which is just one notch above the sovereign IDR.