In an announcement on 8 April 2022, DBRS Morningstar upgraded the Republic of Cyprus' credit rating from BBB(Low) to "BBB" and raised the outlook from positive to stable.
DBRS justifies its decision to upgrade the Republic's credit rating to 'BBB' on the basis of prudent public debt management policies, the Government's historically positive performance in terms of its ability to reduce the fiscal deficit, Cyprus' participation in the Eurozone and its favourable business and investment climate.
According to the House, the rating upgrade reflects Cyprus' better-than-expected economic and public finance performance in 2021 and the expectation that medium-term conditions remain supportive of Cyprus' debt reduction efforts, despite the risks posed by Russia's invasion of Ukraine and the pandemic.
The Cypriot economy exceeded the pre-pandemic level of real GDP in 2021, despite a partial recovery in the tourism sector. Fiscal recovery has proceeded much faster than expected in 2021, with the fiscal deficit falling to 1.8% of GDP from 5.6% of GDP in 2020, mainly due to strong revenue growth. The House noted that Cyprus returned to a small primary surplus of 0.1% of GDP in 2021. Against this backdrop, Cyprus' elevated public debt ratio fell from 115.0% of GDP in 2020 to 103.9% of GDP in 2021.
In addition, in the banking system, the continued reduction in non-performing loans and the limited impact of the pandemic on banks' asset quality are supportive factors for the upgrade. Improvements in Fiscal Management and Policy, Debt and Liquidity, and Monetary Policy and Financial Stability are key drivers for the upgrade.
The Government remains firmly committed to strengthening Cyprus' fiscal position, promoting sustainable recovery and the long-term stability of the Cypriot economy.
(ΣΧ)
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