Rating agency Moody’s said on Thursday the election of Nikos Christodoulides as president suggests “the continuation of a fiscal discipline and reform progress” but warned reunification talks on the Cyprus problem may be “hindered” by the hardline stance of the parties which supported him.
Moody’s described Christodoulides as an independent and moderate. He won the run-off ballot last Sunday, garnering 51.9 per cent of the popular vote, beating fellow independent candidate Andreas Mavroyiannis, who was the country’s chief negotiator for the talks between 2015-2017. He was backed by Akel.
“Christodoulides’ term in office will be five years and we expect him to form a government with wide appeal,” the agency said in it is bi-weekly bulleting titled ‘Credit outlook.’
The agency said it expects that the new government “will comprise of technocrats, members of the small centre parties that supported him, and potentially members from his former party, the ruling Disy”.
“We expect the Christodoulides administration will try to maintain Cyprus’ prudent fiscal policy along with economic reform policies.”
Recalling that harmonised consumer price inflation was 6.8 per cent in January 2023 and averaged 8.1 per cent for the full-year 2022, Moody’s added that Christodoulides has announced that any additional support to help households and businesses with the energy and cost of living crisis would need to be targeted, “without allowing fiscal discipline to slip”.
The agency also noted that the incoming president has also argued in favour of a gradual expansion of the cost of living allowance (CoLA), against the more radical demands of private-sector labour associations to avoid weakening the economy’s price competitiveness.
“We expect a greater emphasis on long-term solutions to diversify Cyprus’ energy mix, which relied on imported oil and petroleum products for 83 per cent of its total energy supply in 2021, with biofuels and renewables comprising 13 per cent,” Moody’s added.
According to the agency, apart from the expansion of renewables, the incoming administration will be focused on completing energy diversification projects, such as the Vasilikos LNG gas facility, the Euro-Asia Interconnector project (connecting the power grids of Cyprus, Greece and Israel, and fast-tracking the development of some proximate offshore gas discoveries.
Moody’s also recalls that Christodoulides’ pre-election campaign included pledges of ongoing support for the reforms package under the NextGen EU programme, as well as for the national healthcare system (Gesy), a key reform enacted by the previous administration.
The agency also recalls that Christodoulides managed to gather support from the leadership of the three small parties of the political centre and centre-left, Democratic Party (Diko), Democratic Front (Dipa) and Socialist Party (Edek), as well as parties and groupings that did not manage to enter parliament.
Moody’s pointed out that “crucially, Christodoulides also attracted substantial voters from the ruling, conservative Disy party: he was a Disy party member until very recently and was foreign minister under Disy party leader and outgoing President Nicos Anastasiades.”
On the Cyprus problem, the agency said the president-elect promised a renewed effort to resolve the long-standing Cypriot reunification talks with the goal of achieving a bizonal, bicommunal federation and pursuing the EU’s active involvement in the diplomatic resolution process.
“Nonetheless, any talks will be difficult and potentially hindered by the stricter line of smaller parties that supported the new president,” Moody’s added.
Furthermore, the agency said “the electoral outcome of the first round of the presidential elections on February 5 was a blow to the other major candidate, Averof Neofytou, the current Disy leader,” as he failed to qualify for the runoff with only 26 per cent of the vote, compared with 29.6 per cent for Mavroyiannis and 32 per cent for Christodoulides.
“It was the first time that Disy had not been included in a presidential election runoff. It is uncertain whether Disy, which holds the largest number of seats in parliament with 17 out of the 56 seats, will support the new president’s agenda,” the agency said, recalling that the party opted not to specifically align with either of the two candidates in the runoff and instead issued a call to its supporters to choose their vote freely.