By: Kerin Hope, Athens From CNBC

Moody’s, the international rating agency, has upgraded Greece by two notches, reflecting good progress with fiscal consolidation despite continued recession and fragile political stability.

The upgrade from Caa3 to single C with a stable rating still leaves Greek sovereign bonds deep in junk territory, but supports the coalition government’s forecast of a primary budget surplus this year before debt repayments, rising to 1.5 per cent of output in 2014.

“Moody’s expects that the government will achieve (and possibly outperform) its target of a primary balance in 2013, and record a surplus in 2014 in accordance with the adjustment programme,” the agency said.

A senior finance ministry official said on Friday that on the basis of 10-month revenue figures, Greece could achieve a primary surplus of close to €1bn this year.

An improved medium-term outlook and lower interest payments following last year’s restructuring of privately held Greek debt also contributed to the upgrade, Moody’s said.

The economy is bottoming out but will shrink by another 0.5 per cent in 2014 before growing by 1.0 per cent in 2015, it said. The EU and the Greek government both forecast an earlier recovery with growth of around 0.5 per cent next year after six straight years of recession

The finance ministry official said the “troika” of bailout monitors from the commission, the International Monetary Fund and the European Central Bank had postponed a planned visit to Athens until after December 9 because of continuing differences over “two or three structural reforms and a few small fiscal issues.”

The government still hopes to wrap up a deal that would unlock another €1bn of bailout aid before the end of the year but must first overcome strong political opposition to the troika’s insistence on reforms of the real estate sector, which threaten to split the governing coalition of the centre-right New Democracy party and the PanHellenic Socialist Movement (Pasok).

The socialists have rejected the troika’s proposal to lift a ban on home foreclosures that has encouraged “strategic” defaults on mortgages by solvent borrowers and blocked the possibility of a housing market recovery.

Resistance by New Democracy lawmakers to a new unified real estate tax that will include agricultural land for the first time has already forced the finance ministry to reduce the amount to be paid by farmers, leaving a €400m gap in next year’s budget to be covered by additional spending cuts.

Talks with the troika have dragged while the government seeks concessions that would ensure it can push both reforms through parliament. The coalition has seen its majority shrink to just four seats following a series of defections by lawmakers opposed to reform.

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