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Moody’s places Cyprus on review for downgrade

Ratings agency Moody’s has placed Cyprus on review for a possible downgrade citing the slow pace of negotiations with the Troika and evidence that the Cyprus budget deficit will be significantly larger than expected.

MOODY’S Investors Service announced yesterday that it had placed Cyprus on review for a possible downgrade.

The rating agency said that negotiations with the Troika could potentially be prolonged raising further liquidity risks.

It reported that that politically controversial measures such as significant changes in the structure of public expenditures (like the linkage between public-sector wages and inflation) and privatisations are high priorities for the Troika.

Even if negotiations were to be concluded in 2012, Moody’s considers it unlikely that any bailout money will be sent in 2012 because of the length of time that it takes for euro area national parliaments to agree to any new assistance programme. Moreover, the country’s political and election calendar, in particular the Cyprus presidential election due on 17 February 2013, materially raises the risk of a delay in agreeing the conditionality and disbursement of bailout money until late in the first quarter of 2013.

Moody’s said that Cyprus’ rating could be downgraded if there is evidence that the government’s access to short-term funding would be insufficient to meet its needs – or if it fails to reach an agreement with the Troika in a timely fashion.

The rating agency added that a second factor for its review was signs that Cyprus’ budget deficit will be significantly larger than expected. The magnitude of the government’s fiscal challenge is unlikely to decline materially even following agreement on an agreement with Troika because of the sheer size of the financial support needed for the banking sector.

Readers' comments

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  • Adrian says:

    It is a good thing that the bailout money will not come until later in 2013 so that this present communist government doesn’t get its hands on any more cash.

    The next government (and hopefully the same lot don’t get in again) will find all kinds of problems tucked away in ministers departments and then the reality will kick in. “They think its all over” I don’t think so.

  • Martyn's says:

    Surprised it’s only ‘possible’!

    Following several years in complete Denial, all the indicators are pointing severely downwards, both internal and external economic and social factors are now driving this and will it seems continue to do so for some time yet. Clearly the President and his ‘government’ don’t want anything dramatic agreed until they are ‘Out of Office’ in mid February, signs of some classic ‘duckin’ n divin’ abound.

    Then may the Good Lord help those whose role it will be to start sorting the unholy mess the present incumbents have presided over.

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