Rating’s agency Moody’s on Saturday upgraded the outlook on the government of Cyprus to positive from stable. The decision to improve the outlook reflects Moody’s confidence in the potential for strong fiscal and debt outcomes in Cyprus over the next few years. According to Moody’s, this optimistic scenario is anticipated to result from the continuation of prudent fiscal policies and strong medium-term economic growth prospects.
Strengthening the Banking Sector
Moreover, the upward rating pressure could be further supported by increased confidence in the strengthening and deleveraging of Cyprus’ banking sector, which has reduced the country’s vulnerability to banking sector risks and is expected to foster robust growth and solid fiscal results.
Moody’s anticipates that Cyprus will continue to achieve significant fiscal surpluses, projected at around 2.3-2.4 percent of GDP for 2024-25, although slightly lower than the government’s forecast of 2.8-2.9 percent of GDP. These surpluses are expected to further reduce the debt burden to under 65 percent of GDP by 2025. Moody’s assesses that the risks to these fiscal and debt projections are skewed towards more favourable outcomes.
Asked about the upgrade, President Nikos Christodoulides said it was a significant development. He expressed the view that it recognizes the government’s approach to its overall economic policy, summarized in responsible fiscal policy, a robust financial system, and continuous and bold reforms.
“Within this framework, we will continue, precisely to have a strong economy that will allow us – because this is the main goal – to have a targeted social policy for all our fellow citizens whom we should help,” he said. He added that a strong economy would also enable policies in the areas of health and education, which are priorities for the government.
Government’s Commitment
In his comment, Finance Minister Makis Keravnos said the government will continue to responsibly support economic activity in light of the challenges posed by geopolitical developments and energy sector changes, ensuring growth and employment while maintaining healthy public finances.
“The decision by Moody’s to revise the outlook to positive is grounded on the prospect of maintaining fiscal resilience and a downward trajectory of public debt in the coming years,” Keravnos stated. According to him, “such a scenario could materialize through the continuation of prudent fiscal policies alongside the prospects of robust economic growth.”
He added that further bolstering confidence through the strengthening and deleveraging of the banking sector would contribute to enhanced growth and fiscal outcomes, reinforcing the prospects for an upgrade in the credit assessment by Moody’s. “The government will continue to responsibly support economic activity in light of the challenges posed by geopolitical developments and energy sector changes, ensuring growth and employment while maintaining healthy public finances,” he concluded.
