Insider Economy Moody’s expects deleveraging to resume but warns over small economy and high...

Moody’s expects deleveraging to resume but warns over small economy and high level of debt

The credit profile of Cyprus (Ba2 stable) reflects its small but wealthy economy, improved economic resilience and the government’s fiscal outperformance in the wake of the country’s banking crisis, Moody’s Investors Service has said in an annual report.

Moody’s warned on Wednesday that it could change the rating outlook to negative if the positive debt trend were to reverse, or if recent legislative actions in the banking sector failed to significantly reduce non performing exposures (NPEs).

“Cyprus’ strong growth trends and primary surpluses have generated positive debt trends, and we expect deleveraging to resume this year, after a one-off spike in the debt burden in 2018 associated with the capital injection to Cyprus Cooperative Bank,” said Sarah Carlson, a Moody`s Senior Vice President and the report`s co-author.

According to Moody’s, “Cyprus` credit challenges stem from its small and relatively undiversified economy, as well as high levels of government, banking and household debt”.

It noted that “increasing spending pressures have the potential to weigh on fiscal prospects, while the large financial sector is burdened by the highest non-performing exposure (NPE) ratio in the European Union”.

The stable outlook, said Moody’s, reflects the balanced risks following the country’s financial crisis. Debt dynamics are robust and so debt metrics will likely improve steadily.

“The evolution of the sovereign rating and outlook will be driven largely by debt trends and banking sector issues. If Moody’s were to conclude that macroeconomic conditions and policy actions were to result in a sustained and significant decline in the government debt stock and the stock of NPEs in the banking sector, the rating agency would consider changing the rating outlook to positive,” the report noted.

Conversely, it stressed, “negative rating pressure would emerge if the debt trend were to reverse, or if recent legislative actions in the banking sector failed to significantly reduce NPEs”.

(Cyprus News Agency)

Top Stories

128 new cases, three deaths announced on Wednesday

The Health Ministry announced the death of three persons due to COVID-19. This raises the death toll from the virus in Cyprus to 193,...

Where to get antigen rapid tests during period 28-31 January

The Health Ministry announced the following antigen rapid test sites during the period 28-31 January 2021: LIMASSOL Church of Agios Ioannis Eleimon, Limassol 08:30-18:30 Cultural Center Mesa...

Israel, Denmark to vaccinate all athletes for Tokyo Olympic Games

Several countries, including Israel and Denmark, said on Wednesday they would vaccinate their athletes and staff against COVID-19 ahead of the Tokyo Olympics, amid...

UK AstraZeneca vaccine plant partially evacuated over suspect package

A factory in Wales that produces AstraZeneca's COVID-19 vaccine was partially evacuated on Wednesday after it received a suspicious package and police said a...

43-year-old arrested for speeding

Members of the Police arrested this morning a 43-year-old man who was seen speeding at the Nicosia-Larnaca road near Koshi village. The man was stopped...

Taste

Squash soup

Ingredients: 1 kg pumpkin, cut into small cubes, approximately 5 cups 2 medium (400g) sweet potatoes, cut into cubes, approximately 2 ½ cups 1 chopped leek, only...

Mezedes

No visit to Cyprus is complete without enjoying the traditional meal of many small dishes known as ‘meze’. This large feast, which has been a...

Prawns with fried cheese, barley shaped pasta

Put the barley shaped pasta into a small pan with salted water, bring to a boil and when tender, drain. Peal the prawns leaving...

Salmon and shrimp sheftalies

Mix all ingredients for tabbouli in a bowl and keep to one side so flavours can combine. Prepare the sheftalies: wash and soak the casing...