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Finance Minister says Standard&Poor’s rating confirms rational management of economy

Finance Minister Constantinos Petrides warned repeatedly that if spending was not brought under control the system would collapse

Finance Minister Constantinos Petrides on Saturday said that Standard & Poor’s credit rating is a confirmation of the rational management of the economy and public finances by the government, despite the negative effects of the Covid-19 pandemic.

Standard & Poor’s Global Ratings on Friday affirmed BBB-/A-3 long- and short-term foreign and local currency sovereign credit rating for Cyprus, with a stable outlook. The minister noted the importance of the affirmation of Cyprus’ rating, despite the fact the is suffering the negative effects of the coronavirus.

“The rating is a confirmation of the rational management of the economy and public finances by the government, which is the key to ensuring macroeconomic stability and fiscal sustainability,” Petrides said.

He added key factors that have contributed to the strong confidence in the Cypriot economy are the government’s permanent commitment to maintain budgetary surpluses, the trend of reducing public debt, the persistent efforts to consolidate the banking sector, as well as the management of the public debt and securing strong cash reserves by the state.

He said that especially under the difficult conditions in the world economy and in the international markets due to the coronavirus pandemic and its economic challenges, the ministry of finance remains committed to maintaining the credibility of the Cypriot economy.

Standard & Poor’s report expressed the view that Cyprus’ eurozone membership, strong cash position, solid growth prospects, and historically prudent fiscal policies will mitigate the Covid-19 impacts on the sovereign’s creditworthiness.

The report pointed out that authorities are implementing measures to curb the spread of the virus, while safeguarding incomes and shielding businesses from a temporary, albeit critical, liquidity shock. It added however that Covid-19 fallout has pushed Cyprus’ tourism-dependent economy into a severe recession and prompted a large deficit in 2020, with estimates that GDP will contract by 7.3 per cent in 2020 before recovering by 5.5 per cent in 2021.

According to S&P the stable outlook captures the view of Cyprus’ solid long-term growth prospects, improving public debt dynamics and track record of running budgetary surpluses against high stocks of public and private debt. The agency considers, however, the inherent vulnerability of the country’s small open economy, given its large tourism sector and exposure to external shocks, such as the ongoing Covid-19 pandemic.

“We could consider raising the ratings on Cyprus if the banking sector materially reduced its nonperforming exposures (NPEs) and financial conditions improved, alongside faster-than-expected deleveraging in the economy or stronger external performance,” the report said.

Alternatively, it added, ratings downside could stem from markedly lower-than-projected economic growth in the coming years, impeding private debt servicing and financial sector improvements. A negative rating action could also occur if, contrary to expectations, fiscal performance does not improve and the general government debt burden rises substantially.

“We believe that EU membership supports Cyprus` creditworthiness, particularly favorable decisions taken at both the level of the EU and the European Central Bank (ECB) in recent months,” the report said.

While public debt remains high, proactive debt management has considerably improved the island’s public debt profile, as have the highly supportive monetary policies introduced by the ECB since 2012. Furthermore, it is added, authorities hold significant cash buffers, at least equivalent to nine months of financing needs, reducing short-term refinancing risk.

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