STANDARD & Poor’s Ratings Services has revised its outlook on the Republic of Cyprus to positive from stable while, at the same time, reaffirming its ‘B+/B’ long- and short-term foreign and local currency sovereign credit.
The outlook revision reflects S&P’s view of the faster-than-expected reduction in Cypriot general government debt, supported by less adverse economic growth prospects than previously.
S&P estimates that the Cypriot economy will bottom out in 2015 and then slowly strengthen, based on a resilient business services sector, a solid tourism sector, and gradually recovering private consumption. However, the ratings agency continues to believe that investment growth will remain negative, as the process of deleveraging by domestic banks continues.
It now forecasts average net general government debt over 2015-2017 at 91.8% of GDP, compared with 103.4% of GDP in its rating review in October 2014. It currently expects general government interest expenditures will average about 7.8% of general government revenues during 2015-2017. Gradual further easing of borrowing terms by Cyprus’ official lenders would support the decline in the net government debt-to-GDP ratio.
The agency acknowledges that that its projections are subject to uncertainty, due to various potential shocks to Cyprus’ small, open, services-based economy, which it projects will begin growing again in 2015, for the first time since 2011 in real and nominal terms. The depreciation of the Russian ruble and the expected contraction of the Russian economy, alongside the EU sanctions imposed on several large Russian commercial banks and companies, could drag on prospects in key Cypriot sectors, including tourism and business services.
The government welcomed Standard and Poor’s decision, Deputy Government Spokesman Victoras Papadopoulos has said in a written statement.
“It is important for the outlook of the Cypriot economy to be rated as positive by the particularly strict Rating Agencies that are also important for the international markets,” Papadopoulos said.
He noted however that “it is the duty of all of us not only to safeguard this positive outlook but also to strengthen it, collectively and responsibly.”