Moody’s upgrades Cyprus a notch to Ba3

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By Stelios Orphanides

Moody’s Investors Service on Friday upgraded Cyprus’s credit rating a notch from B1 to Ba3 which is still three grades into the speculative area, citing the economy’s resilience and a fiscal overperformance.

Moody’s which kept the outlook at positive said that it reflects “improvements in economic resilience and continuing fiscal outperformance are likely to be sustained, with a reduction in the debt-to-GDP ratio as well as a fall in the stock of non-performing loans held by the banks”.

The economy which emerged from a three-year recession in 2015 when it expanded 1.7 per cent and grew another 2.8 per cent last year is expected to sustain the momentum over the medium term with private consumption being the key-driver supported by a drop in the unemployment rate and an increase in tourist arrivals, Moody’s said in an emailed statement. “We also expect investment growth across the wider economy to recover gradually, in spite of constraints upon domestic credit growth resulting from the large number of non-performing loans in the banking system and the high corporate debt burden.”

The government which generated last year a fiscal surplus of 0.4 per cent of economic output and a primary surplus of 3 per cent, is expected to produce a “a headline deficit of just 0.4% of GDP this year and a primary surplus of around 2.1% of GDP in 2018, lower than the projections of the government but still supportive of further debt reduction,” Moody’s said. “As a result, the debt burden of the government, whilst high, is expected to decline from a debt-to-GDP ratio of 108% in 2016, to around 95% of GDP by 2020.”

Moody’s which last upgraded Cyprus on November 13, 2015 by two notches, said that a further credit rating upgrade is possible with a further decline in non-performing loans in the banking system, which account for almost half of total loans, and government debt and expectations that growth will be sustained at current levels.

On the other hand, possible doubts about the government’s commitment in restoring macroeconomic and financial stability “particularly in the context of a lower growth environment” and evidence of further need to recapitalise banks could result in a downgrading, the rating company said. “A re-emergence of elevated financial and debt market stress, that might be triggered in the case of a country leaving the euro area, for example, would also be credit negative.”

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About Author

Stelios Orphanides is a journalist at CyprusBusinessMail.com. To contact Stelios Orphanides: [email protected]

  • JS Gost

    The BS machine is in in overdrive again….

    • Easy does it

      And the British OAPs are getting upset again with every positive development for Cyprus.
      You guys are so predictable!

      • JS Gost

        I am actually Cypriot. I am not an OAP. Why so xenophobic and ageist? or is it the case that now the Chinese immigration scams are 20% of the GDP no other foreigners really matter so it’s okay to vent your misdirected anger at British OAPS ? So many assumptions, so little substance.
        The ratings agencies only help large financial institutions make more money out of FX , Bonds and inter country investments while the countries and their populations suffer from the machinations of these corrupt spin doctors.

        • Easy does it

          LOL, sure you are!
          Good job on the conspiracy stuff too, any new info about the Illuminati?

          • JS Gost

            What experience do you have in international finance then ? Or is the the usual troll attitude of, if somebody has a view I am against it, even if I don’t know what I am talking about ?

          • Easy does it

            Your rantings have zero to do with “international finance”. Just the usual global conspiracy buffoonery parroted by old men in coffee shops.

          • JS Gost

            As always, without knowing me or my history the trolls make wildly sweeping statements and nonsensical statements in some bizarre inwardly satisfying ego trip, attempting to induce negative reactions whilst your empty bluster is actually quiet funny. Ignorance must truly be bliss. Arrogance is just veiled stupidity.

          • Easy does it

            When in a hole stop digging!
            Maybe websites like infowars or the secret truth are more to your liking.
            Factual based discussions not so much.

          • JS Gost

            As a troll, you are probably best qualified to living in holes. Strangely, you are the one aware of some very interesting websites. As to factual based discussion; your constant assumptions, little personal digs against many commentators and general modus operandi shows your true purpose here.

          • Easy does it

            It is all a global conspiracy! Moody’s is just the latest conspirator to show its face.
            Brace yourself, more are coming!

          • JS Gost

            I love your dogged persistence. Will you ever learn a new trick ?