Standard & Poor’s raised its long-term sovereign debt rating on Cyprus to B- from CCC+ on Friday, saying immediate risks to debt repayments on the bailed-out Mediterranean nation appeared to have receded.
“The stable outlook reflects our view of the implementation risks that remain as the end of the three-year European Commission, International Monetary Fund, and European Central Bank program approaches, balanced against the upside potential we see coming from Cyprus’ economy,” S&P said in a statement.
It is the first ratings upgrade in three years for Cyprus, which was shut out of international financial markets for high implied yields on its traded debt in May 2011 and came to the brink of financial collapse earlier this year. Fitch rates Cyprus B-, and Moody’s Investors’ Service at Caa3.
The island, one of the smallest countries in the euro zone, signed up to a €10 billion bailout programme with the IMF and EU in March.
Programme money was not allocated to commercial banks, and the accord was conditional on Cyprus shutting down a major bank and recapitalising a second lender with its clients’ deposits.
Lenders have since reviewed Cyprus’s progress twice, giving it positive reviews.
Standard and Poor’s said the biggest challenge in Cyprus meeting lenders’ conditions was a privatisation programme, expected to raise €1.4 billion by 2018.
An upside risk to the economy was anticipated revenue from offshore gas finds, but commercial incentives could be thwarted by the island’s political division between Greek and Turkish Cypriots, Standard and Poor’s said.
President Nicos Anastasiades, who took power just before the bailout was concluded in March, said his government would be “consistent and disciplined” in managing the island’s adjustment.
“This is the result of painful sacrifices by our people, but also the decisive policies this government has followed the past eight months,” he said in a statement.
Standard & Poor’s however, cut the Netherlands credit to AA+ on Friday, removing one of the euro zone’s few remaining triple-A ratings while rewarding Spain for its efforts to reform public finances with an improved stable outlook.
S&P said the Dutch decision, which leaves Germany, Luxembourg and Finland as the only countries in the currency bloc with the top credit rating, was due to a worsening of growth prospects. Both Moody’s and Fitch still rate the Netherlands as triple A.
“The real GDP per capita trend growth rate is persistently lower than that of peers at similarly high levels of economic development,” S&P said in a statement, while affirming the Netherlands’ short-term rating at A-1+.
The agency said it had revised its outlook on Spain, which has worked hard over the past two years to reorder its finances, to stable from negative and affirmed its BBB-/A-3 long and short-term foreign and local currency sovereign credit ratings.
It said Spain’s external position was improving as economic growth gradually resumes.
“Other credit metrics are stabilizing, in our view, due to budgetary and structural reforms, coupled with supportive euro zone policies,” S&P said in a statement.