DBRS Morningstar upgraded the Republic of Cyprus’ sovereign credit standing on Friday from BBB (low) to BBB, and altered the pattern from Constructive to Steady.
It said that the ranking improve displays “Cyprus’ stronger-than-anticipated financial and public finance efficiency throughout 2021 and DBRS Morningstar’s expectation that medium-term situations stay supportive of Cyprus’ debt discount efforts, regardless of dangers posed by Russia’s invasion of Ukraine and the pandemic.”
The Canada-based company famous that “the Cypriot financial system exceeded its pre-pandemic actual gross home product stage throughout 2021, regardless of the one partial restoration of the tourism sector. The fiscal restore has progressed a lot quicker than anticipated in 2021, with the fiscal deficit falling to 1.8% of GDP from 5.6% of GDP in 2020, primarily pushed by robust income progress.”
It went on to emphasize that “Cyprus returned to a small main surplus of 0.1% of GDP in 2021. On this context, Cyprus’ elevated public debt ratio decreased from 115% of GDP in 2020 to 103.9% of GDP in 2021. Moreover, the banking system’s continued nonperforming exposures (NPEs) discount and restricted impression from the pandemic on asset high quality are supportive components for the improve.”
As for the change to Cyprus’ outlook to Steady, it displays DBRS Morningstar’s view “that the dangers stay broadly balanced. Cyprus is among the European Union international locations most closely uncovered to the Russian market and due to this fact uncertainty over the length of the invasion and its impression on longer-term fiscal and debt metrics raises uncertainty. Nevertheless, DBRS Morningstar considers that the impression on credit score metrics will probably be contained.”
“DBRS Morningstar expects some direct and oblique unfavourable impacts on Cyprus’ financial system from Russia’s invasion of Ukraine on financial progress in 2022, given a excessive publicity to Russia, particularly within the tourism {and professional} providers sectors the place restoration will likely be slower than anticipated. Additionally, rising power costs will exacerbate the already elevated inflationary pressures and additional erode family’s buying energy.”
Nonetheless, DBRS Morningstar “takes the view that Cyprus’ medium-term financial prospects stay strong and the nation must be nicely positioned to handle and modify to the shock,” it mentioned.
