By Stelios Orphanides
Moody’s Investors Service upgraded yesterday Cyprus’s government bond rating to B3 from Caa3 and placed it on stable outlook from positive while affirming its not-prime short term rating, the rating company said.
“The upgrade reflects the government’s progress to date in addressing the country’s key challenges with respect to macroeconomic stability, fiscal consolidation and banking sector stability,” Moody’s said in an emailed statement.
Moody’s added that “the upgrade reflects two key drivers” such as the government’s consolidated fiscal position which is expected to generate a primary surplus this year and the expected stabilisation of the ratio of public debt to economic output next year, as well as the stabilised financial sector following the recapitalisation of Cypriot lenders.
The recapitalisation of troubled banks “to some extend lowers the risk that bank related contingent liabilities will crystallise on the government’s balance sheet,” Moody’s added. “However, Cyprus’s government bond rating remains constrained by substantial credit challenges, including a weak economic outlook and the very high and still rising non-performing loans in the banking sector, which generate further negative risks to the government’s balance sheet. Concurrently, Moody’s has today raised the bond ceilings to B1/NP from Caa1/NP, and the deposit ceiling to Caa1/NP from Caa2/NP. In both cases the rise is in line with the change in the government bond rating”.
Following today’s upgrade Cyprus’s credit rating is still considered as highly speculative or non-investment grade. On October 24, Fitch Ratings and Standard & Poor’s upgraded Cyprus’s long term debt rating to B- and B+ respectively.
Government’s deputy spokesman Victor Papadopoulos said the government welcomed the upgrade and added that difficulties still exist as the problems, which “led to the countries initial default, have not yet been fully resolved”.