Capital Intelligence, the Limassol-based rating company, said that it affirmed Cyprus’s B+ long-term foreign currency sovereign rating and B short-term foreign currency sovereign currency rating maintaining their positive outlook threatened by “substantial risks”.
“Cyprus’ ratings remain constrained by limited competitiveness and large socio-economic challenges, with the unemployment rate in Cyprus among the highest in the European Union,” the rating company said in an emailed statement on Friday. “The debt overhang in the business and household sectors is very large and the banking crisis has undermined the country’s medium-term growth prospects by eroding investor confidence and severely constraining access to credit for local businesses”.
Still, both the ratings and the positive outlook reflect the Cypriot economy’s return to growth and the better than expected fiscal performance, Capital Intelligence said. They are also related to “the government’s commitment to post-programme reforms and improved access to international capital markets which has helped to lower government refinancing risk”.
Capital Intelligence said that it expects that the government will “press ahead” with stalled reform process leading to delays in “key areas,” such as foreclosures and privatisations. “The political situation remains stable and policymaking predictability is expected to remain unchanged in the short to medium term,” Capital Intelligence said adding that after reunification talks “picked up” this year, “both parties seem closer to reaching a solution. That said, no solid results have been announced and CI’s baseline scenario still assumes the absence of a final agreement”.