The upgrading of Cyprus’ long-term rating by agency Fitch from BBB to BBB+ is “a vote of confidence in the government”, President Nikos Christodoulides said on Saturday.

“The latest upgrade … which comes in addition to successive upgrades seen in the last 15 months, confirms the fact that the Cypriot economy is on a trajectory towards stable growth and is plotting a dynamic course,” he said.

He added that his government’s approach, emphasising “responsibility and staying away from populist approaches”, will continue “with the same determination and strategic planning”.

“Thanks to our economy’s positive course and the state’s fiscal capacity, we can implement targeted interventions to support households, vulnerable groups of the population, the middle class, and businesses,” he said.

Fitch had announced their upgrade of Cyprus’ economy on Saturday morning, saying it “reflects reduced vulnerabilities to financial shocks, resilience to external shocks, and favourable medium-term trends”.

“This is supported by a strong commitment to fiscal prudence, which is expected to continue to lead to sustained improvements in Cyprus’ credit score.”

In specifics, they pointed out that Cyprus’ non-performing loan ratio stood at 7.9 per cent at the end of last year, the lowest seen since the global financial crisis, and down from a peak near 50 per cent.

In addition, they said that positive trends in bank profitability driven by higher interest rates have also translated into improvements in solvency metrics for the island’s banking sector, with Cyprus’ tier 1 common equity ratio reaching 21.5 per cent in December, above the European Union average of 16 per cent.

They also highlighted a weak credit demand and strong nominal economic growth seen in Cyprus, with household and corporate debt to GDP ratios falling to 67.9 per cent and 140.4 per cent respectively in the third quarter of 2023.

Both of these figures have almost halved since their peak in 2015, with Cyprus’ ratios now falling closer towards the EU average.

Additionally, they highlighted the government’s budget surplus, which is expected to reach a headline figure of 3.1 per cent and a primary surplus of 4.5 per cent – the highest in the Eurozone.

This, they said, has been supported by a marked growth in government revenue, sparked largely by increased social security contributions brought about by the expansion and strengthening of Cyprus’ labour market.

They also made reference to a reduction in Cyprus public debt, which is expected to fall to 70.6 per cent of GDP this year and 65.1 per cent of GDP next year.

This figure is well above the BBB median of 56 per cent, but Fitch pointed out that “Cyprus has managed to reduce its public debt at one of the highest rates in the Eurozone” from a high of 115 per cent in 2020.

In terms of room for improvement, Fitch pointed out Cyprus’ high current account deficit, which has now reached 12.1 per cent, and is the highest in the EU.

This increase, they said, has been sourced by a significant increase in imports and a heightened repatriation of profits by overseas companies. The figure is expected to narrow over the coming years, though rising revenues from tourism and other service sectors can only partially offset it.