Capital Intelligence, the Limassol-based rating company, said that it upgraded Cyprus’s long-term foreign currency sovereign rating one notch to B+ and maintained the short-term foreign currency rating at B with the outlook of both ratings remaining at positive, citing the economy’s growth and the fiscal outperformance.
“The government’s commitment to reforms, which is expected to pave the way for Cyprus to exit the international rescue programme without a safety net in March 2016” and its lower refinancing risk of government debt as a result of an improved access to international markets, were additional factors which led Capital Intelligence to upgrading Cyprus’s sovereign rating, the company said in an emailed statement on Friday. The new rating is below investment grade.
The return to growth in 2015 after 14 consecutive quarters of recession, combined with the government’s commitment to meet the terms of the 2013 €10bn bailout, helped improve the government’s risk profile, Capital Intelligence said.
“Although there have been delays in some key areas, for example privatisation, Cyprus is on course to exit its European Union-International Monetary Fund programme in March 2016 without a safety net,” the statement said. “The economy has continued to outperform targets, with real gross domestic product likely to have increased by 1.6 per cent in 2015, supported by the resilience of some service sectors and a pickup in tourism. With domestic demand showing signs of recovery, the pace of real output growth is expected to quicken” in 2016 and 2017 to 2 per cent and 2.2 per cent respectively.
Capital Intelligence added that after the government brought public spending under control in 2013, government debt is expected to drop to 96 per cent of economic output in 2017 after rising to 109 per cent last year from 107.5 per cent the year before.