S&P returns Cyprus to A grade for first time since 2011 crisis

S&P Global Ratings has upgraded Cyprus’ long-term credit rating to A, while maintaining a positive outlook for the country’s sovereign debt.

The upgrade was welcomed by President Nikos Christodoulides, Finance Minister Makis Keravnos and Bank of Cyprus chief executive Panicos Nicolaou, who described it as a sign of confidence in the resilience and prospects of the Cypriot economy.

S&P said it expected the Cyprus economy to continue generating strong fiscal revenues, which would allow the government to further reduce its debt burden in the coming years.

The agency highlighted the significant growth in services exports, particularly in information technology and intellectual property, which it said had strengthened Cyprus’ export base.

Strong inflows of foreign direct investment had helped moderate private sector external debt, while fiscal surpluses supported a substantial reduction in public sector debt, S&P said.

The agency expected public debt to continue declining both as a share of gross domestic product and in absolute terms, supported by strong economic growth, tax revenues and spending controls.

S&P forecast fiscal surpluses averaging slightly below 3 per cent of GDP through 2029, reducing net public debt to slightly above 30 per cent of GDP over the same period.

Economic growth was expected to average just below 3 per cent through 2029, supported by resilient domestic demand, a strong labour market, rising real incomes and significant public and private investment, including the use of funding from the Next Generation EU programme.

S&P said the economy had remained resilient despite regional conflicts involving Russia, Ukraine and developments in the Middle East.

It forecast higher oil prices in 2026 and 2027, but said these should remain manageable for Cyprus despite the country’s heavy dependence on imported oil for electricity generation.

The agency noted that strengthening national energy security remained a top priority for the government, particularly given the current geopolitical environment.

While natural gas extraction remained a long-term ambition, S&P described the completion of the liquefied natural gas terminal at Vasilikos as a critical medium-term measure for reducing energy risks.

Once operational, the terminal could facilitate a shift away from diesel-fired power generation and significantly reduce energy costs, which are among the highest in the EU, while also helping address Cyprus’ relatively low share of renewable energy, the agency said.

However, S&P noted that the terminal’s timetable remained uncertain because of repeated construction delays, putting its planned operation towards the end of 2027 at risk.

The agency also referred to the Great Sea Interconnector, which is intended to connect Cyprus’ electricity grid with Greece and Israel.

The project remained stalled because of differences with Turkey, S&P said, despite EU funding having been secured for most of the project.

On inflation, S&P expected consumer price growth to average 3.8 per cent this year, noting Cyprus’ particular exposure to fluctuations in oil prices despite the extension of reduced VAT rates on fuel until 2027.

The banking sector was also highlighted positively, with the average non-performing loan ratio continuing to fall to 1.6 per cent in December 2025, below the European average.

Domestic lending increased by 2.5 per cent in 2025 for the first time after years of decline, with S&P expecting further growth.

Christodoulides described the upgrade as a major economic milestone, saying Cyprus had returned to the A rating category for the first time since 2011.

“It is undoubtedly a strong vote of confidence in our economy, in its resilience and prospects, and a strong vote of confidence in our economic responsibility and high growth rates,” Christodoulides said.

“And all these are not simply indicators, as they have real importance and impact because in practice a stronger economy means more and better-paid jobs,” he added.

“With responsible management, steady steps and bold reforms, we are strengthening the credibility and competitiveness of our country while building a safer foundation for future generations,” the president continued.

On his part, Keravnos said the upgrade carried particular significance because it came amid international instability, ongoing conflicts and wider geopolitical uncertainty.

“The upgrade of the credit rating at a time of great instability carries particular weight and importance for the prospects of the Cypriot economy,” Keravnos said.

“Cyprus is moving one notch higher in the investment grade category and its credibility in international markets is being strengthened further,” he stated.

Keravnos said the government’s balanced and growth-oriented economic policy, which was aimed at safeguarding resilience, had been recognised through the ratings upgrade.

He also highlighted the decision to retain the positive outlook, saying it was particularly important and confirmed expectations that economic growth would continue.

“The government will continue to consistently implement its prudent policy, ensuring in the most effective way the resilience and growth of the economy,” Keravnos said.

“The government’s priority is for the benefits of the good performance of the economy to reach our households and businesses, and through targeted social policy to effectively support our most vulnerable fellow citizens,” the finance minister added.

The Finance Ministry said the S&P decision reflected confidence in strong fundamentals and the resilience of the economy to adverse international market conditions.

It said the upgrade came against a backdrop of intense geopolitical uncertainty that was placing significant pressure on economies worldwide and creating serious economic and social consequences.

According to the ministry, S&P expected economic growth to continue at 2.7 per cent, while fiscal surpluses were also expected to persist.

The ministry said the substantial reduction in public debt was expected to continue, with the debt ratio projected to fall to slightly above 30 per cent by 2029.

It added that the very strong labour market and continued private investment were expected to support domestic demand.

S&P expected the current account deficit to remain close to 7 per cent between 2027 and 2029, which it considered manageable, according to the ministry.

The agency identified several factors that could affect future ratings, including major external shocks, public finance performance, further public debt reductions and foreign direct investment inflows.

“In such a negative environment, Cyprus has not only been upgraded, but expectations for further upgrades remain strong as the positive outlook is maintained,” the ministry said.

It added that the Republic had returned to the A rating category for the first time since 2010, meaning it was now only one notch below the highest rating of A+ that S&P had historically assigned to Cyprus.

The ministry said continued adherence to fiscal discipline and sound choices had already produced results and was expected to deliver further benefits.

Bank of Cyprus chief executive Panicos Nicolaou also welcomed the upgrade, highlighting its timing and the progress made by the economy.

“Today’s upgrade of Cyprus by S&P is a clear vote of confidence in the country’s trajectory, underscoring the resilience of the Cypriot economy,” Nicolaou said.

“It underscores the resilience of the Cypriot economy and the progress achieved in recent years, despite geopolitical uncertainty,” he added.

“At the Bank of Cyprus, we view this as further validation of the path we are on, disciplined, focused and forward-looking,” the CEO stated.

“We remain committed to supporting households, businesses and the Cypriot economy through prudent policies and a long-term perspective,” he concluded.