As reported by ServPRO, on Friday the 18th of March 2016, Standard and Poor`s (S&Ps) rating agency affirmed Cyprus` long- and short-term credit rating at BB-/B with a positive outlook, expecting the Cypriot economy to continue to grow at more than 2% in real terms over 2016-2019, while strengthening its budgetary position and reducing government debt.
S&P highlighted that the key holdback for the country’s financial stability and economic performance is the high level of nonperforming loans (NPLs) of the financial sector.
“The affirmation reflects our view that, following the conclusion of European Stability Mechanism / International Monetary Fund-financed economic adjustment program in March 2016, we expect the Cypriot economy will continue to grow at more than 2% in real terms over 2016-2019, despite high levels of nonperforming loans (NPLs) remaining a key concern for financial stability and economic performance”, the rating agency stated.
The rating agency said it expected the unemployment rate to decline further to below 13% by 2018, a factor which will support consumption.
S&P’s also projected that net general government debt will decline below 80% of GDP by 2019 and that general government interest payments will average about 6.3% of general government revenues during 2016-2019.
S&P stated that Cyprus’ rating could be raised this year if the country’s economic recovery exceeds their projections in real and nominal terms and if the Cypriot banks accelerate their progress in reducing the currently high levels of NPLs on their balance sheet.
Furthermore, S&Ps said the rating could be lowered if banking sector stability comes under renewed significant pressure, for example due to unaddressed deterioration in asset quality or if budgetary performance falls short of reducing government debt in line with their current forecast.
Cyprus is the fourth member of the Eurozone to exit its bailout scheme following Ireland, Spain and Portugal. The country used 7.25 of the total 10 billion available by the financial bailout.