Scope Ratings has upgraded Cyprus’s credit rating to A- from BBB+, marking the country’s first A-level rating from a major credit agency. This upgrade reflects Cyprus’s improved economic stability, positive fiscal outlook, and reduced risks in the financial sector. The upgrade is seen as a significant milestone, highlighting the country’s strengthened financial footing and forecasting stability for the future.
The agency also boosted Cyprus’s short-term issuer rating from S-2 to S-1, citing robust economic health and better financial stability. Several key factors contributed to the upgrade, including Cyprus’s strong fiscal performance, which is evident in a steady reduction of national debt from 115% of GDP in 2020 to 77.3% in 2023. The debt level is projected to decrease further, potentially below 60% by 2026 and under 50% by 2029. Scope also forecasts fiscal surpluses of about 3% of GDP for 2024 and 2025, with long-term budgetary discipline expected to yield an average surplus of 1.8% from 2026 to 2029.
Economic growth remains strong, with Cyprus’s GDP growth rate projected at 3.2% in 2024, outpacing the eurozone average. Contributing factors include robust demand fueled by decreasing inflation, low interest rates, and a low unemployment rate of 4.6%. Major sectors, like tourism, financial services, and construction, drive this growth, while the ICT sector and EU-supported public investment further diversify and bolster the economy. By 2026, natural gas production may begin, adding to economic stability and energy security.
Cyprus’s banking sector has also shown resilience, with improved profitability, asset quality, and liquidity. The country’s financial stability has strengthened since the 2012-2013 crisis, with non-performing loans (NPLs) on the decline, though they remain relatively high for the euro area. Banks benefit from a rise in profitability due to higher interest rates and stronger capital reserves. Additionally, a new foreclosure framework has helped reduce NPLs, further enhancing stability in the sector.
Overall, Scope Ratings’ upgrade underscores Cyprus’s impressive fiscal progress and economic resilience, highlighting positive growth prospects and a stable outlook.
[Source: CNA]