The long-term credit rating of the Republic of Cyprus at level "A" was confirmed by Morningstar DBRS, while upgrading the trend from Stable to Positive, a development that creates conditions for a new upgrade of the Cypriot economy.
The international house also confirmed the short-term ratings at the R-1 level (low), also with a Positive trend.
According to the Ministry of Finance, the decision of Morningstar DBRS is mainly based on the expectation that Cyprus will maintain its strong fiscal position and continue its steady de-escalation of public debt. The agency predicts that the public debt-to-GDP ratio will fall below 40% by 2029.
At the same time, it sees favourable prospects for the Cypriot economy, with the real growth rate expected to remain close to 3% annually and fiscal surpluses to remain above 2%.
What does it see positively and where does it identify weaknesses?
Among the key advantages of Cyprus, Morningstar DBRS ranks strong institutions, membership in the European Union, stable political environment and effective fiscal and economic policy.
On the other hand, the small size of the Cypriot economy and low productivity are recorded as limiting factors for the credit rating.
The agency points out that a further upgrade could occur if the reduction of public debt continues in line with the existing projections or further strengthens the resilience of the economy and labour productivity.
Conversely, the trend could return to stable if the economy proves less resilient to external shocks or if debt de-escalation is significantly smaller than expected.
Downward pressure on the rating could arise in the event of a significant deterioration in the path of public debt or structural changes that would weaken the growth prospects of the economy.
The assessment also takes into account the strong fiscal performance of the last two years, the significant reduction of public debt, as well as the strong capital position and liquidity of the banking sector and the improvement of its asset quality.
Keravnos - Confirming Resilience
The Minister of Finance, Makis Keravnos, described the decision as another confirmation of the resilience shown by the Cypriot economy in a period of ongoing international instability.
As he mentioned, it is of particular importance that the rating agency recognizes the government's prudent and precautionary economic policy, the steady de-escalation of public debt and the fiscal reserves available to the Republic of Cyprus to deal with potential external risks.
Mr. Keravnos said that the government will continue to support the economy "in a responsible and flexible way", with the aim of maintaining growth and employment, reducing public debt and maintaining the possibility of exercising social policy.
