The government will continue to support economic activity, so that after the pandemic is over, it will return to positive rates, both in terms of growth and employment and public finances, Finance Minister Constantinos Petrides said on Saturday after rating agency DBRS, kept the credit rating of Cyprus at BBB (low) with a stable outlook.
In a written statement, the minister stressed that “to achieve this goal, the government supports the Cypriot economy and society as a whole in a targeted and flexible manner and, at the same time, promoting appropriate economic plans that will allow maximum possible utilisation of the European programmes and funds available.”
Petrides reiterated his call on the parliamentary parties to proceed with the approval of the state budget for next year, which he said, was “an emergency budget” and would help minimising economic consequences and restoring the economy to a positive pace.
Rating Agency DBRS Morningstar confirmed Cyprus’ long term credit rating to BBB(low) maintaining a stable outlook, citing that the country’s economy exhibited a less than expected economic contraction and that the risks to the ratings are broadly balanced risks despite the contraction due to the Covid-19 pandemic.
“The Cypriot economy contracted by a less-than-expected 5.5per cent year-on-year in the first half of 2020, less severely than the euro area average. The fiscal surplus is expected to shift to a deficit, with the government debt-to-GDP ratio rising close to a still manageable 115 per cent of GDP in 2020,” the agency said in a press release.
The agency added it expects the Cypriot economy to recover from the Covid-19 shock and the increase in the public debt ratio to reverse, “although the pace of the economic recovery, particularly that of the tourism sector, is highly uncertain at the moment given the ongoing pandemic.”
DBRS also said that “there is uncertainty over the impact from the loan repayment moratoria on Cypriot banks from next year,” noting however that banks remain well capitalised and have continued to reduce their legacy non-performing loans in 2020”.
According to the agency, the ratings confirmation “are supported by Cyprus’ prudent public debt management framework, its good track record in fiscal deficit reduction, its Eurozone membership fostering sustainable macroeconomic policies, and its openness to investment encouraging a favourable business environment.”
“Nevertheless, Cyprus also faces significant credit challenges related to still sizable legacy non-performing exposures (NPEs) in the banking sector and the economy, high levels of private and public sector debt, external imbalances, and the small size of its service-driven economy, which exposes Cyprus to adverse changes in external demand,” it added.