S&P upgrades Cyprus to BB+ with stable outlook citing stalled reforms

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By Stelios Orphanides

Standard & Poor’s (S&P) said that it upgraded Cyprus’s sovereign rating to BB+ from BB which is still one notch below investment grade and placed it on stable outlook citing better than expected economic and fiscal performance.

“The stable outlook balances our view of Cyprus’s fiscal and economic progress against unusually high levels of nonperforming loans in its financial sector, alongside risks of weaker reform delivery ahead of next year’s presidential elections,” the rating company said in a statement on its website on Friday adding that it affirmed the B short-term rating. “At an estimated 48 per cent as of end-November 2016, nonperforming loans are among the highest of all rated sovereigns. We believe that the banking sector is reducing asset quality concerns, although we still view financial stability as a main risk and consider the contingent liabilities from the financial sector as moderate”.

“In our view, the deterioration in the banking sector’s asset quality reached an all-time low in early 2015,” it said.

S&P added that it also expects the economy to expand this year 2.7 per cent before growth slows down to 2.5 per cent over 2018 to 2020 adding that it also expects public debt to drop to 90 per cent of economic output by the end of next year. “We think that the sovereign’s budgetary position will on average show a small surplus over 2018-2020, driving a discernible decline in government debt,” S&P said.

“We expect labour demand to remain solid and project that the unemployment rate, 13.3 per cent at year-end 2016, will fall below 12 per cent by 2018,” S&P said. “We forecast investment activity to accelerate with foreign private-sector funding contributing to projects in the tourism and energy sectors, also reflecting funding from the European Union (EU), the European Investment Bank (EIB), and the European Bank for Reconstruction and Development (EBRD). Although domestic banks have increased lending activity and the real estate sector has stabilized, the protracted restructuring in the banking sector will constrain construction activity”.

S&P added that it expects that the geopolitical situation in the wider region will allow tourism to continue adding to growth, even at a “lower pace” despite last year’s Brexit vote in the UK.

“In the medium-to-long term, economic growth prospects may also flourish from the exploitation of natural gas fields,” it said. “An additional supportive factor to the country’s growth rate is in the possibility of currently negotiated reunification of the island, which would likely bolster investment activity and increase the economy’s growth potential, despite initial micro- and macroeconomic challenges, and the potentially substantial upfront cost of infrastructure investments in the north”.

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About Author

Stelios Orphanides is a journalist at CyprusBusinessMail.com. To contact Stelios Orphanides: stelios@cyprus-mail.com

  • Adele

    Well I never.

    • Slomi

      me too

  • Claphamer

    Well done Cyprus!

  • dave

    Excellent!

    Does this mean that everyone will get their title deeds now?

    • A Viewer

      why do you need a title deed?

  • charlie

    Just remember that the “rating” of the big four are just their “opinion”, and have so just the value of an “opinion”.
    If one add to this, the tendency of rating agencies to conflicting interests, and the recent nomination of one of its main shareholder in D.Trump government…one can say that this rating is rather BS+ than BB+.

    • Jim Demetrios

      Perhaps c. But I will follow their lead for my investments.

      • charlie

        You’re one of the Lehman brothers? ;D

        • Jim Demetrios

          Used to be my brokerage firm. Dark days. Point taken.

  • JSReturnsAgain

    Those wonderful ratings agencies are at their dark mumbo jumbo again. Increase the ratings of broken countries in the EU and downgrade the UK and US. Make loads of money for their banking clients on the FX markets and repeat….. printing money has never been so easy at the expense of the global economy.

    • Neroli

      I’m sure that will entice investments in Cyprus!!

  • Jim Demetrios

    Same rating as Turkey. But the difference is that the ROC is improving while Turkey’s economy is worsening by the day.

    • A Viewer

      Cyprus BB+ stable
      Turkey BB negative

      • Jim Demetrios

        Thanks AV for the correction.

        • A Viewer

          glad to be of service 🇨🇾🇨🇾🇨🇾🇬🇷🇬🇷🇬🇷🇨🇾

  • Jay Bee

    Some good, positive news – due in no small way to the work of our Finance ministry and our Haris. Forget the rest of the toe-rags….

    However, in the background, is that the noise of idle standby troughs being readied for action ?

    • Neroli

      Yes and the swine are standing by ready to get their snouts in!

      • Jay Bee

        You got my vibes then ……………… ;0)

        • Neroli

          Certainly JB!

        • A Viewer

          don’t you mean snide remarks?