Cyprus moving forward, creating hope says President

President Nikos Christodoulides on Saturday welcomed Cyprus’ revised long-term rating from stable to positive by international ratings agency Fitch, saying it was an acknowledgment of the government’s planning.

He stressed the successive positive ratings translate into prospects and opportunities, with the Cypriot economy becoming even more outward-looking, resilient and attractive for investment, which also allows for the development of targeted social policies and successful responses to the challenges the country faces.

“With a plan, a clear vision, boldness and determination, our country is moving forward, creating hope and prospects for all the Cypriot people.”

In a rating action issued on Friday evening, the agency revised Cyprus’ long-term rating from stable to positive, citing economic resilience, fiscal surpluses with continued reduction of public debt as well as improved banking sector metrics.

It affirmed Cyprus long-term issuer rating to ‘BBB’. The agency upgraded Cyprus’ rating in March 2023, a rating affirmed last June.

However, the agency pointed out that a risk to macroeconomic developments and external finances is a further escalation of geopolitical tensions in the Middle East, which may affect investment and tourism links between Cyprus and Israel.

“The latter has grown in importance as a trade partner and source of investment in recent years,” the agency added.

Fitch expects Cyprus will register a general government budget surplus this year of 2.3 per cent of GDP, higher than the 1.7 per cent projected in  the previous review in June.

Christodoulides said the positive development comes a day after a bundle of foreclosures bills were passed into law.

“The new revision of the Cypriot economic outlook, this time from stable to positive, by the Fitch Rating Agency, emphatically confirms the path of progress and growth. A path based on the responsible economic policy pursued by the government,” he said.

“By resisting populism and pointless scaremongering, we will continue responsibly, consistently and with vision, because this is what the collective interest demands.”

According to Fitch, the Cypriot economy has remained relatively resilient this year, with GDP increasing by 2.5 per cent on an annual basis in the first three quarters of 2023.

“Faster economic growth in 2H24 should translate into GDP growth of 2.7 per cent for next year. Continued expansion in domestic demand and sizeable inflow of EU funds along with improved macroeconomic conditions among Cyprus’ main trading partners, will support growth further in 2025, when we expect the growth rate to pick up to 3.0 per cent,” it added.

“Despite the extension of support measures to mitigate the impact of high prices and assumed fiscal costs from the Mortgage-to-Rent scheme, we expect a further surplus for next year and 2025 (averaging 2.2 per cent of GDP),” Fitch noted, pointing out that “we assess that the Cypriot authorities are committed to maintaining sufficient primary surpluses to bring about a sustained reduction of the government-debt-to-GDP ratio.”

The agency cites improved Banking Sector Metrics, noting that non-performing loans (NPLs) have continued to decline at a moderate pace, with the NPL ratio decreasing to 8.6 per cent in August from 10.9 per cent in August 2022 (it peaked at 50.2 per cent in November 2014).

According to Fitch, a resolution of the uncertainty surrounding the legal framework for foreclosures may support further reductions in NPLs and private sector debt ratios, which remain high but on a declining trend, with the household debt-to-GDP ratio at 69.3 per cent in 2Q23, down from 76.3 per cent a year earlier.

The agency also noted that positive trends in bank profitability driven by higher interest rates have translated into improvements in solvency metrics for the banking sector, with the common equity Tier 1 ratio reaching 18.9 per cent in June, up from 17.7 per cent a year earlier, and higher than the EU average (15.95 per cent in 2Q23).