Fitch has raised the sovereign credit rating for Cyprus by a notch, with the country’s president saying this is a “vote of confidence” and a reward for maintaining a resilient economy. The rating agency said it upgraded Cyprus from ‘BBB’ to ‘BBB+’, which indicates that expectations of default risk are currently low.
According to Fitch, this also means that the capacity for payment of financial commitments is considered adequate, but adverse business or economic conditions are more likely to impair this capacity. Delighted with the upgrade, President Nikos Christodoulides said in a statement that, “the new upgrade by Fitch Ratings, which comes in addition to successive upgrades of the last 15 months, confirms the fact that the Cypriot economy is on a stable growth trajectory with a dynamic course. It is at the same time a vote of confidence in the Cypriot economy and recognition of the prudent policy we are following.
“With the same commitment and strategic planning, to implement policies based on the tripartite: fiscal responsibility, stable financial system and continuous reforms,” he said. “Thanks to this positive course of the economy and the fiscal capacity of the state we can implement targeted interventions to support households, vulnerable groups of the population, the middle class and businesses.”
Fitch’s Rationale for the Upgrade
In its rationale for the single-notch upgrade, Fitch cited the country’s increased ability to withstand financial shocks, the government’s commitment to keeping its finances in order, and a strengthened banking sector, thanks to a continued reduction of non-performing loans since the 2012 financial crisis.
The rating agency credited the country’s “very strong fiscal performance” in the last two years, with a primary surplus expected to reach 4.5%, which it called “by far the highest” among countries that use the euro as their currency. Public debt is expected to fall to 70.6% of GDP this year and 65.1% in 2025 thanks to high growth and large budget surpluses. Although the public debt level is still relatively high, the government has managed to reduce it “at one of the sharpest rates in the eurozone” and among other countries that the agency rates.
For the Cyprus economy, Fitch projects overall growth to reach 3% this year and in 2025.
