STANDARD and Poor’s has pushed Cyprus further into junk territory by slashing its credit rating by two notches to CCC+, reflecting its view that the Cyprus government’s short-term financing position is increasingly vulnerable.
In its statement, S&P said “With the government’s financing options increasingly limited – coupled with what we view as the hesitant attitude of Cyprus’ eurozone partners toward sharing the cost of a severe banking crisis – we view the risk of a sovereign debt default as considerable and rising”.
“The downgrade reflects our view that Cyprus’ creditworthiness has deteriorated further since the last downgrade on Oct. 17, 2012, as financing pressures have intensified and uncertainty about the terms of any official support persists ahead of the February 2013 presidential elections.”
S&P noted that while Cyprus’ bailout talks with the troika (International Monetary Fund, the European Union and the European Central Bank) has been slow, some progress had been made.
It welcomed “far-reaching spending cuts” included in the government’s 2013 budget proposal, but cautioned “We believe the budget’s underlying revenue assumptions may be too optimistic.”
S&P said that the negative outlook indicated that another downgrade was possible, should “external and fiscal financing pressures escalate.”
“We see at least a one-in-three chance that we could lower the ratings again in 2013,” the agency said, adding that the rating could stabilize if a bailout deal was “quickly agreed”.