Cyprus Finance Minister welcomes Standard & Poor’s nod of credit rating approval

Finance Minister Harris Georgiades welcomed on Saturday the latest rating by Standard & Poor’s (S&P) that placed the sovereign credit rating outlook of Cyprus from stable to positive.

On Friday, S&P maintained Cyprus’s BB+ sovereign credit rating – still a notch below investment grade – but upgraded the outlook from stable to positive, citing the consolidation of public finances and the economic growth rate at higher levels than previously expected.

“This is a positive sign for the international investment community to build trust and growth prospects, provided we continue our effort responsibly and credibly away from the practices that led us to downgrades,” Georgiades said in an announcement.
“We expect the budgetary position to remain in surplus over the forecast horizon, without factoring in any further discretionary measures,” the rating company said in a statement late on Friday. “Even if there were some fiscal slippage in the run-up to the 2018 presidential election, we would expect public finances to subsequently consolidate, leading to a decline in general government debt. We also expect that the strength of the underlying recovery – reflected broadly across economic sectors and evidenced further in improved labour market outcomes, resurgent corporate profitability, and rising disposable incomes – will allow private balance sheets to deleverage further”.

With non-performing loans in the Cypriot banking system still accounting for almost half of the total in the system, S&P said that it will consider increasing the island’s credit rating if credit monetary conditions in the economy continue to improve and converge with conditions in the euro area “via a material reduction” of delinquent loans in the system.

Further economic recovery to pre-crisis levels and a reduction of government debt as a percentage of economic output will also justify an upgrade, the agency said.

Days after the finance ministry revised its economic growth forecast to 3.5 per cent from a previous 2.9 per cent for 2017, S&P said that it expects the Cypriot economy, which emerged two years ago from a prolonged recession, to grow on average 3 per cent over the 2017 to 2020 “supported by investment activity and services exports”.

“We expect the impact of Brexit on Cyprus to be limited,” it added. “In our base case, we do not anticipate a detrimental shift in policy following the presidential election in early 2018”.

S&P last updated Cyprus’s rating in March from a previous BB- assigned a year ago. The current BB+ rating is Cyprus’s highest. Fitch Ratings assigned Cyprus with a BB- with a positive outlook, Moody’s with B1 with the outlook placed also on positive and DBRS with BB low with stable outlook.