Fitch has revised Cyprus’ outlook to stable from positive to reflects the significant impact of the global COVID-19 pandemic on Cyprus’s economy and on the sovereign’s fiscal position. It also affirmed the BB- rating.
In a statement it said the recession, economic policy response to Covid-19 will result in a sizeable deterioration of cyprus’ budget balance this year and added that risks to Cyprus’ baseline forecast are tilted firmly to downside, as it assumes that Covid-19 can be contained in 2H20.
The ratings agency added that Cyprus’s demonstrated track record of significant fiscal consolidation and prudent fiscal policy is a relevant credit strength
Fitch expects the Cypriot economy’s demonstrated flexibility, illustrated for example by the fall in unemployment to close to pre-crisis level to drive the recovery after the severe short-term shock. The GDP growth forecast is highly uncertain in 2021, but afterwards it is expected that the GDP growth will gradually converge to 2% medium term growth potential, unchanged since the last rating review.