cyprus outlook — Credit rating agency S&P has upgraded the outlook of Cyprus’ economy from “stable” to “positive”, highlighting a faster-than-expected improvement in external debt ratios.
- cyprus outlook — Credit rating agency S&P has upgraded the outlook of Cyprus’ economy from “stable” to “positive”, highlighting a faster-than-expected improvement in external debt ratios.
The island’s credit rating remains at “A-/A-2” for both long-term and short-term debt. S&P noted that the new outlook reflects the expectation that Cyprus will outperform current projections regarding its external position. This anticipated performance is attributed to a more rapid de-escalation of external debt.
Despite a persistent current account deficit, Cyprus has seen significant net inflows of foreign direct investment. This influx has facilitated a gradual reduction in external debt, prompting S&P to suggest that an upgrade could be possible if leverage continues to decrease at a stronger pace than estimated.
However, potential risks loom on the horizon. S&P cautioned that any deterioration in the external environment, such as decreased financial activity among trading partners or heightened geopolitical tensions, could exert pressure on the economy, public finances, and banking system.
The agency’s upgrade of Cyprus’ economic outlook is largely due to expectations of a further strengthening of its external position, driven by ongoing public and private sector deleveraging, alongside resilient services exports. For instance, despite an average deficit exceeding eight per cent of GDP over the past five years, gross external debt continues to decline.
S&P praised Cyprus’ fiscal performance as impressive, noting that strong economic activity and a high employment rate have bolstered tax revenues and social security contributions. These factors, combined with controlled public spending, have led to sustained surpluses and a continued reduction in public debt.
Looking ahead, S&P forecasts an average surplus of 3.3 per cent of GDP between 2025 and 2028, with net debt projected to fall to 35 per cent of GDP by 2028, down from 56 per cent last year and 90 per cent in 2019.
In terms of growth, S&P indicated that strong economic momentum has persisted into the early part of this year, predicting a growth rate of 3.3 per cent for 2023. This growth is expected to be increasingly driven by domestic demand, rising real incomes, and investments from both private and public sectors, especially following a notable rise in tourism and the relocation of technology companies to the island.
Moreover, Cyprus’ economy has shown resilience against conflicts in Ukraine and the Middle East, with limited exposure to trade tensions between the United States and China. Nevertheless, the slowdown in Europe could pose indirect risks to economic stability.
President Nikos Christodoulides welcomed the upgrade, stating it marks Cyprus’ entry into a path of enhanced momentum and reflects the consistency and responsibility of the country’s fiscal choices. He emphasised that Cyprus has emerged as a reliable centre for quality investments, leading to reduced borrowing costs, strengthened entrepreneurship, and the creation of well-paid jobs.
Finance Minister Makis Keravnos echoed these sentiments, asserting that the upgrade demonstrates confidence in the government’s economic policy as recognised by major rating agencies. He remarked that the continuous positive assessments of Cyprus’ economic credibility reflect not just its creditworthiness in international markets but also the dynamic nature of the Cypriot economy in a climate of increased geopolitical risks.
Keravnos affirmed that the government will persist in its economic policies aimed at fostering stable and sustainable growth, grounded in fiscal discipline and financial sustainability. He underscored the importance of focusing on initiatives that support the populace, particularly underprivileged social classes, through sensitive economic policies.