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- Ελληνικά
Credit Rating Agency Moody's announced a double upgrade of the Republic of Cyprus' credit rating from Ba1 with a positive outlook to Baa2 with a stable outlook.
With this upgrade, the Republic of Cyprus is now ranked at investment grade by all international rating agencies and by two notches within the investment grade range, with the exception of the DBRS rating which ranks Cyprus at three notches within the investment grade range.
The two-notch upgrade and the classification of the Cypriot economy in the investment grade by Moody's, after almost 11 years, reflects the remarkable performance of the Cypriot economy in a very difficult international environment and reflects the government's efforts to implement an efficient economic policy aimed at supporting the soundness of the economy, public finances and the banking sector. Substantial private and public investment, together with the implementation of further structural reforms under the NextGenerationEU (NGEU), support the medium-term growth outlook, according to Moody's. Cyprus' fiscal soundness has improved significantly, while the downward trend in public debt (which was temporarily interrupted by the economic and fiscal impact of the pandemic) is expected to continue, according to Moody's. In addition, the same house says that the continued strengthening of the banking sector limits any contingent liability risks for the government and supports further GDP growth, contributing to economic growth.
The stable outlook balances these positive trends against the remaining challenges. The challenges include the potential slowdown in progress in the implementation of investments and reforms related to Cyprus' Recovery and Resilience Plan (NRRP) based on Moody's assessments, the remaining risks related to the banking system that could jeopardise the positive economic and fiscal dynamics, and the climate change risks to which Cyprus is exposed that could undermine growth more than estimated The particularly high absorption of EU funds and the effective implementation of reforms, especially in the areas of the judiciary and corruption control, could be another positive point in this direction, as the boost to potential growth and the strengthening of institutions and governance could be significantly higher than estimated at this stage by this House. A further reduction of the State's exposure to banking sector risks through the continued deleveraging of the banking sector, coupled with the substantial strengthening of Cypriot banks, could also contribute positively to the upward path of the Republic of Cyprus' credit rating in the future.
At the same time, the international credit rating agency DBRS Morningstar upgraded the Republic of Cyprus' credit rating from BBB to "BBB (high)" and confirmed its outlook at stable.
DBRS bases its decision to upgrade the Republic of Cyprus' credit rating to 'BBB(high)' on the declining path of public debt and the expectation that it will continue to decline in the coming years, on economic growth, which even if declining remains among the strongest in the euro area, and on projected real GDP growth, which is estimated at 2.4% in 2023 and 2.7% in 2024.
DBRS believes that the new government will continue to pursue prudent fiscal policy. The government's stability programme targets primary fiscal surpluses of 3.2% of GDP in 2023 and 3.7% in 2024.
In addition, the house notes that risks from global financial instability, which had increased in the previous review conducted in March 2023, have receded in recent months. In the banking sector, although the realisation of contingent liabilities remains a significant risk, the House does not expect a reversal of the downward trend in debt ratios in the coming years. Improvements in "Fiscal Management and Policy" and "Debt and Liquidity" are the key drivers for the upgrade.
Cyprus' rating at BBB (high) and outlook at stable according to the house is also supported by the stable political environment, the government's sound fiscal and economic policies in recent years and the favourable public debt profile. In addition, DBRS continues to view the country's EU membership as an important basis for institutional quality. On the other hand, Cyprus also faces significant challenges due to the still high stock of legacy non-performing loans (NPLs) in the banking sector and the comparatively low level of labour productivity in the economy. In addition, Cyprus' ratings continue to be constrained by the small size of its service-based economy, which makes it vulnerable to external shocks.
The agency highlights as the most important factors for the Republic of Cyprus' future credit rating upgrade the maintenance of economic growth and strong fiscal performance, increased economic resilience and improved labour productivity.
The government will continue to support economic activity in the Republic of Cyprus. To achieve this objective, the Ministry of Finance supports the Cypriot economy and society as a whole in a targeted and flexible manner by promoting appropriate economic plans that will allow for maximum use of the European funds and programmes on offer.
(AF)
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