Standard and Poor’s (S&P) has rated Cyprus 4th among the countries with the most to lose from Brexit.
The 2019 ‘Brexit Sensitivity Index 2019: Who Has The Most To Lose?’, surveys 21 countries most exposed to Brexit, lists Ireland, Luxembourg, the Netherlands and Cyprus as the economies most susceptible to any trade and migratory aftershocks.
S&P said its Brexit Sensitivity Index (BSI) measures goods and services exports to the U.K., bidirectional migrant flows, financial sector claims on UK counterparties on an ultimate risk basis, and foreign direct investment (FDI) in the UK.
The BSI is the sum of these four data points all normalised and converted into a scale from 0 to 1. The higher the sum, the greater the exposure. Cyrus was also ranked 4th in S&P’s first Brexit index in 2016, which was compiled prior to the British referendum in June that year.
“With its large tourism, auditing, and financial sectors, and historical connections to the UK, Cyprus remains close to the top three economies most exposed to Brexit,” the survey report said. The UK market remains Cyprus’ main source of visitors.
“Cyprus hosts a large population of UK pensioners, as well as two military bases, technically a British Overseas Territory that accounts for 3 per cent of Cyprus.”
It also said a large portion of Cypriot nationals live and work in the UK
“We estimate that annual remittances of Cypriot nationals resident in the UK to Cyprus amount to around 0.2 per cent of Cyprus’ annual GDP.”
It underlined that this was “a substantial figure”, albeit below that for Hungary (0.3 per cent of GDP), Lithuania (0.4 per cent of GDP), and Latvia (0.6 per cent of GDP).
“Cyprus is no stranger to external shocks, having managed to retain much of its business services sector and to recover economically from the 2012-2013 financial crisis and sovereign default. Even so, Brexit could create headwinds for its economy, given the importance of migratory, export, and financial links between the two countries,” S&P said.
It added that like Cyprus, Malta exports a substantial amount of tourism and business services to the UK, and has a large population of resident UK national pensioners. Malta’s financial claims on the UK are, moreover, larger than Cyprus’. However, excluding SPEs, Malta’s inward FDI into the UK is essentially zero, it said.
Of the 21 sovereigns most exposed to Brexit, only two (Canada and Switzerland) are not EU members, and one (Canada) is not European, the survey added.
“Our index does not reflect the potential political and market aftershocks of Brexit,” said S&P.
“Rather, it distills the current real and financial economic links to the UK economy, the world’s fifth largest, while also indicating which sovereigns might be more exposed to an unwinding of the UK’s standout macro feature: its current account deficit of 5 per cent of GDP. As a major provider of equity and debt financing to the UK, the Euro area is also the largest single investor in the UK.
“Any change in the nature of the UK-EU relationship will have significant implications for Europe, but an even larger effect on the UK, the only current EU member that we have not included in our BSI Survey.”