cyprus economic — cyprus economic — S&P has upgraded the outlook of Cyprus’ economy to positive, reflecting a faster than expected improvement in external debt ratios. The credit rating agency has maintained Cyprus’ credit rating at ‘A-/A-2’ for both long-term and short-term debt. The new outlook indicates a likelihood that Cyprus’ external position will exceed current projections in the next two years, driven by a more rapid de-escalation of external debt.
Cyprus economic: Positive Outlook Driven by Economic Resilience
S&P stated that the upgrade to a positive outlook is largely due to expectations of further strengthening in Cyprus’ external position. This improvement is aided by ongoing public and private sector deleveraging, alongside resilient service exports. Despite the island’s persistent current account deficit, which has been over eight per cent of GDP for the last five years, Cyprus has seen a decline in gross external debt.
Foreign Direct Investment Boosts Economic Stability
The agency highlighted that net inflows of foreign direct investment are crucial to the gradual reduction of external debt. S&P warned, however, that any potential deterioration in the external environment could pose risks to the economy, public finances, and banking system. This includes reduced financial activity among Cyprus’ trading partners and increased geopolitical tensions.
Fiscal Performance and Economic Growth
Despite the challenges posed by the current account deficit, S&P described Cyprus’ fiscal performance as impressive. Growth in tax revenues and social security contributions, supported by controlled public spending, has led to continued budget surpluses and a reduction in public debt. Forecasts suggest an average surplus of 3.3 per cent of GDP from 2025 to 2028, with net debt expected to fall to 35 per cent of GDP in 2028, down from 56 per cent last year and 90 per cent in 2019.
Strong Economic Momentum
The agency noted that strong economic momentum has continued into early 2023, projecting a growth rate of 3.3 per cent for the year. Factors contributing to this growth include a surge in tourism and the relocation of technology companies, which are expected to drive domestic demand, increase real incomes, and stimulate both private and public investment.
Resilience Amid Global Challenges
Cyprus has shown resilience to the effects of conflicts in Ukraine and the Middle East, with limited exposure to recent trade tensions between the United States and China. However, S&P cautioned that a slowdown in Europe could create indirect risks that might impact the Cypriot economy.
Government Officials React to the Upgrade
President Nikos Christodoulides welcomed the upgrade, stating it marks a significant turning point for Cyprus. He emphasized that it reflects the consistency and responsibility of the country’s fiscal choices. Christodoulides highlighted Cyprus’ emergence as a reliable centre for quality investments, which is expected to lead to reduced borrowing costs, enhanced entrepreneurship, and the creation of well-paid jobs.
Finance Minister Makis Keravnos also commented on the upgrade, noting it demonstrates the confidence major rating agencies have in the government’s economic policy. He stated that continuous positive assessments of the Cypriot economy’s credibility in international markets reflect the dynamism of the economy, particularly in the face of increased geopolitical risks.
A Commitment to Sustainable Growth
Keravnos reiterated the government’s commitment to maintaining economic stability and sustainable growth through fiscal discipline. He emphasised the importance of implementing initiatives that support the population, particularly underprivileged social classes, through sensitive economic policies.
Looking Ahead
As Cyprus continues on this path of economic recovery and stability, the positive outlook from S&P could pave the way for further upgrades if the reduction in net external leverage accelerates. With a focus on strengthening the economy amidst global uncertainties, the Cypriot government remains optimistic about future prospects.
