FITCH is the third ratings agency to place Cyprus on review. Last week Moody’s warned the Island’s Aa3 rating could be adjusted downward, while Standard & Poors cut Cyprus’ sovereign rating last November by one notch.
In its statement, Fitch said that it did not expect Cyprus’ AA minus rating to be downgraded by more than one notch. The rating review is expected to be completed during April and will focus on the fiscal risks facing Cyprus, including state pension schemes and the “economic, financial and banking relationships” between Cyprus and Greece.
Finance Minister Charilaos Stavrakis said the 2011 budget would cap the public debt at its present level of 61 percent of GDP.
But critics say the austerity package does not go far enough to deal effectively with a root cause of the fiscal problem – the bloated public sector.
With approximately 52,500 government employees in a country of 800,000, the state wage bill represents some 30 percent of all government spending.
Stavrakis has vowed to cut about 1,000 government jobs over three years and to open talks with the powerful government employees’ trade union on restructuring the government workers’ pension fund.