Cyprus says no let-up to fiscal discipline course as S&P raises country's credit rating to BBB+

NICOSIA, Cyprus (AP) — Cyprus said Saturday it won’t let up on a course of strict fiscal discipline while supporting economically vulnerable groups and the middle class after credit ratings agency Standard & Poor''s upgraded the country’s rating to BBB+ from BBB.

Cypriot President Nikos Christodoulides said the ratings upgrade affirms the “correctness” of his government’s economic policy of responsible fiscal policies, banking sector stability and continuous reforms.

The agency also kept the outlook for Cyprus as positive, meaning that further upgrades could be possible over the next two years if banks continue to reduce the number of bad loans that burden them — a vestige of the 2013 financial crisis — and Cyprus continues to shrink its current account deficit.

“Access to international markets and attracting foreign investments, among other things, are essential elements to keeping the Cypriot economy on a growth trajectory,” Christodoulides said in a statement.

Outlining its rationale for the upgrade, S&P said in a statement Friday that it forecasts the Cypriot economy to grow by an average of 3% of gross domestic product over the next three years.

The agency also projects the country’s debt to fall below 60% by 2027, thanks to strong fiscal surpluses averaging 2.1% of GDP over the next three years, “our strongest forecast across all 20 eurozone members.”

The agency said its upgrade is also due to Cypriot banks’ efforts to strengthen their financial position through cost-cutting initiatives and moving away from non-resident depositors following the financial crisis that drove the island nation to the brink of bankruptcy.

S&P said Cyprus’ increasingly diversified economy in recent years — including the nascent information and communications technology sector — has allowed the country to shrug off the impacts of the global pandemic, the imposition of EU sanctions against Russia following Moscow’s invasion of Ukraine in 2022 and the most recent Israel-Hamas war in Gaza.

Tourism, a key economic driver, is holding firm, with arrivals close to record levels last year.

S&P warned that it could revise the outlook on Cyprus if the country’s commitment to reducing its public debt wavers or its structural reform progress stalls, which could delay European Union funding.

The S&P upgrade comes a week after agency Fitch also raised Cyprus rating to BBB+ on the strength of the country’s heightened ability to withstand financial shocks, a commitment to fiscal discipline and a more robust banking sector.