Standard & Poor’s Affirms 'BB+/B' Credit Rating on Cyprus

19/03/2018

Standard & Poor’s has affirmed their 'BB+/B’ long-term and short-term foreign and local currency sovereign credit ratings on Cyprus, while noting that the outlook is positive.

“Cyprus’ economic recovery continues unabated, allowing for a reduction in general government debt. The impaired banking system still remains an important vulnerability, however,” according to an announcement.

The credit rating agency says that it could consider raising the ratings on Cyprus in 2018 if the economic recovery and direction of macroeconomic policy provides impetus for further meaningful general government and private sector debt reduction. They also expect to see whether the economy’s external debt metrics improve further, particularly via a decline in its short-term debt burden; and if Cyprus’ credit and monetary conditions continue to converge with those of the eurozone, via a material reduction in Cyprus` unusually high non-performing exposures (NPEs).

At the same time, Standard & Poor’s note that they could revise the outlook to stable if economic growth is significantly lower than currently expected or if a shift in the fiscal stance lead them to believe that general government debt-to-GDP is no longer set to decline over the forecast horizon through 2021.

“We could also revise the outlook to stable if we saw risks emanating from greater economic concentration in certain sectors, for instance, construction or tourism, or if fresh concerns around financial stability emerge while the sector is still impaired” it is added.

The credit rating agency notes, moreover, that Cyprus’ economy expanded by 3.9% in real terms in 2017, outperforming their projection of 3.3% for the year.

S&P forecasts that real GDP will grow by 2.8% on average over 2018-2021, supported by investment activity and service exports, while private consumption decelerates as households increase debt servicing.


 


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