Greece was hit with another financial headache Friday after Fitch Ratings slashed its credit rating on the country's debt because of mounting concerns about the government's ability to get a handle on its debt mountain.
Fitch, one of the world's big three ratings agency, lowered its rating by two notches to BBB negative and said that the outlook on the country remains negative.
The downgrade means that Greek debt remains investment grade — but only just. Another downgrade would make Greece's debt junk status — an ignominious position for a country using the euro currency.
Fitch said its latest downgrade reflects "the intensification of fiscal challenges" following more adverse prospects for economic growth and increased interest costs — on Thursday the country's borrowing costs spiked sharply higher as panicy bond investors fretted about the possibility that Greece could default on its debts.
Fitch said the downgrade reflected "ongoing uncertainties about the government's financing strategy in the context of increased capital market volatility."
The ratings agency thinks it's now increasingly difficult for the Greek government — despite its commitment to reduce borrowings — to achieve its target of reducing its budget deficit to 8.7 percent of the country's national income and ensuring that public debt peaks at just over 120 percent of gross domestic product in 2010 and 2011.
"Pressures on the banking system underline the adverse spill-over from sovereign risk concerns on the wider economy, while contingent liabilities from the banking sector will increase as the government provides banks with increased guaranteed funding," Fitch said.
Fitch took a swipe at Greece's partners in the eurozone for failing to provide enough clarity about a promised loan facility, in conjunction with the International Monetary Fund.
"The agency reiterates the lack of clarity regarding the mechanism for timely external financial support may have hindered Greece's access to market finance at affordable cost and hence further undermined confidence in the capacity of the government to meet its fiscal targets," Fitch said.
It added: "While Fitch judges that external financial support is likely to be forthcoming, greater clarity on back-stop financial support in the form of an explicit IMF programme is likely to be required to shore up market confidence in the face of still substantial near-term financing needs."
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