22.08.2022
Moody’s Investors Service changed the outlook on the ratings of the Cypriot government Ba1 from stable to positive and affirmed the long-term issuer rating in foreign and local currency, as well as senior unsecured rating in local currency at Ba1.
Simultaneously, Moody’s also affirmed the ratings of the senior unsecured medium-term bonds (MTN) program in foreign and local currencies at (P)Ba1. Local currency commercial paper and other short-term ratings have been affirmed at Not Prime (NP) and (P)NP, respectively.
A statement on Friday said Moody’s decision to change the outlook for Cyprus to positive reflects the strong decline in Cyprus’ public debt ratio this year, which Moody’s predicts will continue in the coming years after falling more than ten percentage points of GDP last year. year . year one
This is also due to higher than expected economic resilience to Russia’s invasion of Ukraine (negative Caa3) as well as to the pandemic, coupled with strong medium-term GDP growth prospects, which in turn are supported by a next-generation EU package of grants and loans. In the first half of the year, real GDP growth was 6%, which is one of the highest rates in the euro area, Moody’s notes.
The rating agency also attributes the decision to the continued strengthening of the banking sector as non-performing loans continue to decline. It also notes that the influence of the banking sector on Russia is limited, in contrast to the early 2010s.
The affirmation of the Ba1 ratings reflects a combination of relatively strong economic and institutional soundness and relatively high exposure to event risk associated with the large size of the banking system.
Cyprus’ rating could be upgraded if sovereign fiscal and debt performance improves broadly in line with Moody’s base case over the next 12 months. Continued evidence of strong economic resilience, coupled with high uptake of EU funding and implementation of reforms under the National Recovery and Resilience Plan, will also help boost levels, he added.
Moody’s notes that further improvements in the banking sector, which will reduce the government’s exposure to banking sector risks, will also be positive.
The positive outlook indicates that a downgrade is unlikely in the near future. However, the forecast is likely to return to stable if the economic performance of Cyprus is significantly weaker than expected by Moody’s. A sustained significant deterioration in the government’s financial position would also have a negative impact on creditworthiness, as would a significant deterioration in the banking sector.
Treasury welcomes Moody’s announcement
The Ministry of Finance welcomed Moody’s statement on the Cyprus economy, noting that it recognizes the resilience of the economy and its potential to overcome challenges.
The ministry issued a statement on Saturday following Moody’s decision yesterday to change the outlook on the Cypriot government’s Ba1 ratings from stable to positive, while affirming the long-term issuer ratings in foreign and local currency, as well as senior unsecured ratings in local currency . n a Ba1.
The Ministry, in its statement, emphasizes that the continuous growth of the fiscal situation in Cyprus and the cleanup of the banking sector will lead to future updates.
FinMin notes that the upgrade is due to a significant reduction in the Cypriot public debt ratio this year, higher-than-expected economic resilience to the Russian invasion of Ukraine as well as the pandemic, coupled with a strong medium-term outlook for GDP growth and a decision to continue strengthening banking sector with non-performing risks on the decline.
The ministry also notes that Moody’s said it could upgrade the rating within 12 months with GDP growth of 3% in 2022 and 2% in 2023.
Moody’s also notes that continued evidence of strong economic resilience, coupled with strong uptake of EU funding and implementation of reforms under the National Recovery and Resilience Plan, will also support an upgrade going forward, the ministry said in a statement.
