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Fitch upgrades Greece to B from B-

22 May, 2014

Fitch Ratings on Friday upgraded Greece's sovereign rating to B from B-minus, still in junk territory.

The ratings firm cited the country's improved performance under the European Union-International Monetary Fund program, falling near-term liquidity risk and a better fiscal track record for its upgrade. Fitch kept its outlook on the country at stable.

"Greece achieved a primary surplus in the general government account in 2013, a key target of the EU-IMF programme and an over-performance relative to budget," Fitch said.

The upgrade comes as Greece prepares to go to the polls Sunday for European parliamentary elections and a second round runoff to local and regional elections. The country could be headed for a fresh bout of political instability, depending on how the two parties forming the coalition government-conservatives' New Democracy and socialists' Pasok—perform this weekend.

Though the results won't alter the coalition's narrow two-seat majority in Greece's 300-seat legislature, they will be symbolic for both the government and the main opposition party, the Syriza leftists.

Analysts say snap elections could be called by Prime Minister Antonis Samaras if his New Democracy party trails considerably behind Syriza in Sunday's results. The latest polls show Syriza leading New Democracy by between 2% to 5%.

Greece is expected to return to growth in 2014, ending six years of recession, according to the Greek government and its international creditors. The IMF and the European Commission, which have provided Greece with €240 billion euros, about $327.6 billion, of rescue loans, have forecast that the Greek economy will expand at an annual pace of 0.6% this year.

On Friday, Fitch said it expects GDP growth of 0.5% this year. It expects growth of 2.5% in 2015.

The improved economic outlook has helped boost confidence among investors that have poured more than €10 billion into Greek bank shares, bank bonds and government paper in the past few months.

However, more than a quarter of the country's workforce remains unemployed as the country struggles to implement tough austerity measures in exchange for the international loans.

Such harsh conditions have fueled the rise of Syriza and stoked public anger against the government and the two governing parties that have dominated Greece's political landscape for the past four decades.