President Nikos Christodoulides on Saturday hailed Cyprus’ upgrade to an ‘A-’ long-term credit rating by Standard & Poor’s Global Ratings, marking a significant milestone for the country’s economy.

In a statement, the president emphasised that Cyprus has now achieved an ‘A’ rating from all major international agencies – Moody’s, Fitch, and Standard & Poor’s – consolidating its position among the most reliable economies in the European Union.

He also called on banking institutions “to respond to the favourable conditions made possible by the sacrifices of the Cypriot people, to support the economy and society by reducing lending rates and at the same time narrowing the gap between deposit and lending rates.”

Christodoulides specified the upgrade by Standard & Poor’s completes the rating cycle for 2024.

“Following successive upgrades, our country is consolidating its position among the most reliable economies in the European Union. The triple upgrade is the culmination of a coordinated and methodical strategy adopted by the Government. A strategy that focuses on fiscal responsibility, investment strengthening, stabilising the financial system and promoting structural reforms,” he underlined.

He added that at the same time, the new upgrade “sealed, confirmed and rewarded the country’s determination to restore its international standing through the implementation of measures that consolidate transparency, legitimacy and cooperation on issues such as sanctions and active participation in international anti-corruption investigations.”

Finance Minister Makis Keravnos issued his own statement, saying the successive upgrades of the Cypriot economy’s credibility and its investment grade ‘A’ rating by all major agencies reflects not only Cyprus’ creditworthiness in international markets, but also the economy’s dynamic in an environment of heightened geopolitical risks, as a result of the government’s sound and rational policies in the economy, based on fiscal discipline and growth practices.

S&P Global Ratings raised on Friday its long-term sovereign credit ratings on Cyprus to A- from BBB+ and affirmed its short-term rating of A-2, adding that the outlook is stable.

According to the agency, the stable outlook reflects the balanced risks to Cyprus’ creditworthiness over the next 24 months. It noted geopolitical tensions in the country’s periphery could weigh on growth and stability; while on the other hand, the increasing resilience and reduced dependency on short-term external financing of Cyprus’ banking system has significantly reduced balance-of-payment and contingent fiscal vulnerabilities considerably.

It added that economic activity in the country has shown signs of recovery, with GDP growth estimated at 3.7 per cent in 2024, as service exports, in particular information and communications technology and tourism, have continued to perform well, despite the rise in geopolitical tensions in the region and elsewhere.

The agency expects real GDP growth to moderate to some extent but remain solid, projecting growth of 3 per cent over 2025-2027, driven by investment activity and private consumption, while NextGenEU projects and real estate activity are likely to support activity.

It is also stated the eventual completion of a delayed LNG terminal could ease medium-term energy risk, while gas extraction is a long-term play. It is noted that the terminal should be operational by early 2026, which some estimates suggest it could reduce energy costs by about 30 per cent while being cleaner. Separately, exploration and development in several gas fields within Cyprus’ exclusive economic area are ongoing, with the potential for first output in 2028.

Enactment of reforms under NextGenEU would unlock grants and further support growth, it is further stressed, as Cyprus is slated to receive up to €1.21 billion over 2021-2026, including €1.06 billion in grants, if it implements agreed-upon reforms

S&P described Cyprus’ debt profile as favourable, projecting that by 2026, gross government debt as a percentage of GDP will fall below the Maastricht Treaty threshold of 60 percent for the first time since 2010.

The agency noted that Cypriot banks have largely absorbed the losses associated with cleaning up their balance sheets. While the non-performing loan (NPL) ratio remains higher than that of peers, it has declined steadily, reaching 6.9 per cent in the second quarter of 2024.

In its upside scenario, S&P stated that Cyprus’ ratings could be further upgraded if external vulnerabilities, particularly the current account deficit and external debt levels, were to improve. Additionally, faster-than-expected reductions in government debt could positively impact ratings.

Conversely, the agency warned that ratings could be downgraded in the unlikely event of a severe economic shock, such as one triggered by escalating geopolitical tensions, or if progress on structural reforms stalls, leading to delays in NextGenEU funding.