22.10.2022
International rating agency Capital Intelligence announced on Saturday that it had upgraded Cyprus’ long-term foreign currency rating to ‘BB B- ‘ from ‘BB+’.
At the same time, the agency raised the short-term rating of Cyprus from “B” to “A3”, while setting the outlook for the Cypriot economy from “positive” to “stable”.
“The upgrade reflects the proven resilience of the Cypriot economy and improving financial performance, with the budget deficit and public debt returning to a sustainable trajectory faster than expected,” the agency said in a statement.
The agency said the stable outlook indicates that the ratings will remain unchanged over the next 12 months and balances the risks associated with a possible economic slowdown in the eurozone and prolonged periods of high energy and food prices, with an improvement in the ability to absorb the shock, combined with a strong economic position of the state . productivity .
In addition, the agency said that the forecast could be changed to positive over the next 12 months if macroeconomic and fiscal performance continues to improve, supported by comprehensive structural reforms. This could lead to a faster-than-expected reduction in public debt. In addition, the ratings could be upgraded if banks step up their efforts to improve asset quality and credit coverage.
Moreover, Capital Intelligence noted that the government continues to actively manage public debt, meeting its financing needs through timely market access while maintaining “a substantial cash buffer to weather short-term shocks.”
The report states that potential government liabilities stemming from the banking sector have “decreased significantly in recent years, although they remain relatively high.”
“Other fiscal risks appear to be manageable at this time, despite the challenging external environment associated with the aftermath of the war in Ukraine,” Capital Intelligence notes.
In addition, the agency said that Cyprus’ ratings also reflect the benefits it receives from its membership in the European Union and the Eurozone, including financial support available from the Recovery and Resilience Fund.
According to the report, the agency expects real GDP growth to average 4.7% in 2022, supported by robust private consumption and investment in many economic activities supported by funding through the Recovery Fund.
It is also expected that GDP growth will decline to an average of 3 percent in 2023-2024.
Capital Intelligence also said it revised its base case, now expecting a general government budget deficit of 0.5% of GDP in 2022, down from a previous deficit expectation of 1%.
Going forward, Capital Intelligence said it expects the overall general government sector’s financial position to return to surplus, averaging 1.1% of GDP between 2023 and 2024.
“Reflecting the improvement in the financial position of Cyprus, the total public debt has declined significantly, falling to 96.1% of GDP in the first half of 2022, and should fall to 80.6% in 2024,” the agency concluded.
