Finance Minister Constantinos Petrides on Saturday welcomed the affirmation by Standard & Poor’s international credit agency of Cyprus’ credit rating to “BBB-“. It also confirmed the island’s economic stable outlook.
“Standard & Poor`s (on Friday) confirmed the credit rating of the Republic of Cyprus on the basis of prudent public debt management policy, the strong cash reserves of the State reducing the short-term refinancing risk and the continued pan-European fiscal and monetary support,” he said in a written statement.
“The international credit agency also notes that the stable outlook reflects the view that the risks associated with credit rating are generally balanced, despite the pandemic-induced economic downturn,” he added.
According to S&P, measures to contain the spread of COVID-19 and the sudden stop of tourist flows pushed Cyprus` economy into a recession in 2020, resulting in a sizable fiscal fallout, with gross government debt reaching a high 119% of GDP.
The credit rating agency expects that the COVID-19 pandemic will continue to cloud economic and fiscal outlooks this year amid only partial recovery of the tourism sector.
However, an improved government debt profile, large government cash buffers, and continued pan-European fiscal and monetary support should mitigate these risks.
S&P also noted that the stable outlook balances risks from the pandemic`s protracted adverse impact on growth, fiscal, and banking sector performance against benefits of the EU`s Recovery and Resilience Facility (RRF) transfers, as well as further improvement in the government`s debt profile.
In its “upside scenario” the rating agency says it could raise the sovereign ratings on Cyprus on the back of solid economic growth and improved budgetary performance underpinning a clearly discernible decline in one of the highest stocks of public debt in the region.
In the “downside scenario” ratings downside could emerge if budgetary performance in the coming years is markedly below S&Ps current expectations, threatening the pace of general government debt reduction, or if economic growth prospects unexpectedly deteriorate.