S&P affirmed ratings of Cyprus

The Cyprus government will continue to support economic activity, in order for employment and public finances to return to growth in the aftermath of the pandemic, said Finance Minister Constantinos Petrides, commenting on the affirmation of Cyprus’ rating by Standard & Poor`s to its current investment grade.

In order to achieve this goal, continues the Minister, the government supports the Cypriot economy and society as a whole, in a targeted and flexible way and at the same time proceeds with the planning that will allow the maximum possible utilization of the programs and funds Europe offers.

The international credit agency affirmed Cyprus’ credit rating to "BBB-" and confirmed its stable outlook.

As the Minister pointed out,"Standard & Poor`s” confirmed the credit rating of the Republic on the basis of prudent public debt management policy, the strong cash reserves of the State reducing the short-term refinancing risk and the continued pan-European fiscal and monetary support.

He also said that the credit agency notes that the stable outlook reflects the view that the risks associated with credit rating are generally balanced, despite the pandemic-induced economic downturn, noting the benefits of grants under the EU`s Recovery and Resilience Facility as well as the further improvement of the debt repayment schedule.

In the same context, says the Minister, Standard & Poor`s notes as the most important factors for a future upgrade of the credit rating of the Republic, the return to solid economic growth which is substantial for the reduction of high public debt and at the same time a decline in non-performing exposures (NPEs) on the banking sector`s balance sheet, following an expected increase in 2021.

Petrides also notes that the agency emphasizes that the Cypriot economy will record a strong economic growth in the second half of 2021, supported by the gradual improvement of the pandemic situation due to vaccinations and due to achieving one of the highest rates of COVID-19 testing.

He also stresses that according to Standard and Poor’s, government`s economic policy is expected to remain focused on reducing the weaknesses of the Cypriot economy, promoting sustainable economic growth and improving the financial sector.

On March 5, 2021, S&P Global Ratings affirmed the `BBB-/A-3` long- and short-term foreign and local currency sovereign credit ratings on Cyprus. The outlook is stable.

According to S&P, measures to contain the spread of COVID-19 and the sudden stop of tourist flows pushed Cyprus` economy into a recession in 2020, resulting in a sizable fiscal fallout, with gross government debt reaching a high 119% of GDP.

The credit rating agency expects that the COVID-19 pandemic will continue to cloud economic and fiscal outlooks this year amid only partial recovery of the tourism sector. However, an improved government debt profile, large government cash buffers, and continued pan-European fiscal and monetary support should mitigate these risks.

S&P says that the stable outlook balances risks from the pandemic`s protracted adverse impact on growth, fiscal, and banking sector performance against benefits of the EU`s Recovery and Resilience Facility (RRF) transfers, as well as further improvement in the government`s debt profile.

In its "upside scenario" the rating agency says it could raise the sovereign ratings on Cyprus on the back of solid economic growth and improved budgetary performance underpinning a clearly discernible decline in one of the highest stocks of public debt in the region. We could also raise the ratings in the case of a sustained decline in nonperforming exposures (NPEs) on the banking sector`s balance sheet, following an expected increase in 2021, it adds.

In the "downside scenario" ratings downside could emerge if budgetary performance in the coming years is markedly below S&Ps current expectations, threatening the pace of general government debt reduction, or if economic growth prospects unexpectedly deteriorate.