DBRS Morning Star said it monitors the situation in Cyprus following the rejection of the 2021 state budget, pointing out the potential impact on the government’s ability to function, but also on the economy in case of a protracted dispute.
In emailed responses to CNA, Javier Rouillet, DBRS Vice President said that “there is no immediate impact on the Republic of Cyprus’ ratings as a result of the recent failure to pass the 2021 budget bill,” as the agency has “already incorporated in the ratings the fact the government lacks a majority in the House of Representatives, which makes the passing of legislation difficult.”
Recalling that the Parliament has already passed “stopgap measures” to bridge the gap for January, Rouillet said that “political parties have until the end of February 2020 to reach a compromise.”
DBRS has upgraded Cyprus’ credit ratings to investment-grade in November 2018.
“However, we will continue to monitor the potential impact on the government’s ability to function fully if this situation becomes protracted.
Responding to a question over a credit risk event in the near future, Rouillet said “the probability that this particular situation alone will trigger a credit risk event is low,” pointing out that there are interim measures in place and the Cypriot constitution allows interim budget management, albeit with certain limitations.
He also said that “given the importance of the budget to support the recovery of the economy, a political compromise seems likely.”
“At the moment, we do not foresee a credit event in the near term, but we will continue to monitor the situation,” DBRS Vice President added.
Asked whether he sees any impact on the economy and economic activity in short to medium term, Rouillet said “maybe not in the short term, but a protracted process to approve the budget could affect economic sentiment and could eventually weigh on economic activity.”
“Like in most countries in Europe, fiscal and economic measures are needed to support the recovery of the economy from the pandemic,” he concluded.