By Stelios Orphanides
Finance Μinister Harris Georgiades said Cyprus should remain on the course of economic reforms and fiscal prudence to help it regain its investment grade sovereign rating and reduce its borrowing costs, the Cyprus News Agency reported on Friday.
The drop in borrowing costs for the government would “free valuable resources,” Georgiades was quoted as saying.
The government intends to keep the course unchanged and “continue the reform effort with the same intensity, and prudent fiscal management, to create the basis that will push the economy forward,” Georgiades said.
“Rating companies that are monitoring and evaluating us, were clear on which steps they expect us to take that will lead to an upgrade,” he said.
Cyprus, with a highest rating set in September by Standard & Poor’s at BB-, which is three notches below investment grade, paid a total of €543.6m to service its debt in 2015, accounting for 8 per cent of government spending.
The island paid €466.3m in 2014. Government debt stood at €18.6bn at the end of 2015 compared to €18.5bn a year before.The B1 rating assigned to Cyprus by Moody’s Investor Service and B+ by Fitch ratings are both four notches below investment grade.
The secondary market yield of the 10-year bond issued by the Cypriot government in October was 3.91 per cent on Friday, compared to the 0.15 per cent of respective German securities, according to a Bank of Cyprus document.
Rating companies repeatedly linked a further upgrades to a drop in the stock of non-performing loans in the banking system, the continuation of reforms, agreed with international creditors as part of Cyprus’s 2013 bailout -which include privatisations, an anathema for the populist opposition- and stronger growth. Cyprus completed its adjustment programme in March after its economy and budget performed better than expected.
“We left the recession behind us, the economy is growing, we see that unemployment is also registering a considerable drop, the highest pace in Europe,” Georgiades said. He added that while “we have stabilised the banking system and public finances,” a further drop in non-performing loans, roughly half of loans in the banking system, are expected to drop considerably.
“I believe these two problems, high unemployment and level of non-performing loans, are going well, provided this course is not disrupted,” Georgiades said 17 days before Cypriots elect a new parliament.
Cyprus lost its investment grade rating in June 2012 after effectively being shut out of markets in May 2011. Georgiades oversaw Cyprus’s return to financial markets with three bond issues in 2014 and 2015 at yields below 4.5 per cent.