Fitch, a credit rating agency, has upgraded Cyprus’ credit rating to BBB+ due to the country’s ability to withstand financial shocks, commitment to fiscal responsibility, and a strengthened banking sector with the lowest bad loan ratio since the global financial crisis. The agency also highlighted Cyprus’ falling household and corporate debt, nearing the EU average, and its strong fiscal performance over the last two years, projecting a primary surplus of 4.5%, the highest among eurozone countries. Public debt is expected to decrease to 70.6% of GDP in 2021 and 65.1% in 2025, thanks to high growth and budget surpluses.
Other factors contributing to the credit rating upgrade include Cyprus’ relatively high income per capita and credible policies supported by the EU and the eurozone. Economic growth in Cyprus has accelerated in 2021, and Fitch forecasts a growth rate of 3% for this year and 2025. However, the agency also noted a large current account deficit stemming from low savings compared to investment and highlighted the risk of a ratings change if there is a “structural fiscal loosening.”
In 2013, Cyprus faced a financial crisis that led to a multibillion-euro bailout from eurozone partners and the IMF. The bailout included a seizure of savings over 100,000 euros in the country’s largest bank and the closure of its second-largest bank. The seized deposits were used to support Cyprus’ struggling banking sector. Despite the challenges faced during the financial crisis, Cyprus has made significant progress in reducing its debt level at a rapid rate, outperforming other eurozone countries and countries rated by Fitch.
Cyprus’ positive economic outlook is attributed to its high growth rates, robust fiscal performance, and decreasing public debt. The country’s ability to navigate financial challenges and implement sound economic policies has contributed to its upgraded credit rating. The government’s commitment to fiscal responsibility, along with support from the EU and eurozone, has helped Cyprus achieve economic stability and growth. Fitch’s decision to raise Cyprus’ credit rating reflects confidence in the country’s financial resilience and prospects for continued economic recovery.
Despite the positive developments, Fitch highlighted the risk of a structural fiscal loosening and a large current account deficit in Cyprus. These challenges could impact the country’s credit rating in the future if not addressed. However, with ongoing support from the EU and eurozone, as well as Cyprus’ dedication to maintaining sound economic policies, the country is well-positioned to sustain its economic growth and further improve its credit standing. The upgraded credit rating is a testament to Cyprus’ progress in strengthening its economy and financial sector following the 2013 financial crisis.
