Cyprus’ positive credit outlook brings fiscal reform opportunities, council says

Nicosia, Cyprus. Cyprus Fiscal Council president Andreas Charalambous said Morningstar DBRS’ decision to revise Cyprus’ credit outlook to positive was expected and reflected favourable macroeconomic conditions and a strong fiscal position. He also warned that pension reform and the approaching election period could pose fiscal risks.

Ratings decision

Morningstar DBRS affirmed Cyprus’ long-term credit rating at ‘A’ and revised its outlook from stable to positive. The agency also affirmed the Republic’s short-term ratings at R-1 (low) and moved their outlook to positive.

Charalambous, speaking to the Cyprus News Agency, said the decision reflected Cyprus’ positive macroeconomic data, particularly its fiscal position.

Structural challenges

Charalambous said the Fiscal Council’s assessment, due to be published in mid-September, would highlight the opportunity created by the country’s fiscal position to address long-standing structural problems.

He said a strong fiscal position gave Cyprus scope to tackle issues related to the structural characteristics of the economy, social inequalities and climate change.

Prospects for an upgrade

Morningstar DBRS said Cyprus could receive a further rating upgrade if public debt continued to decline in line with current expectations. Greater economic resilience and higher labour productivity could also support an upgrade.

Charalambous said the positive outlook showed Cyprus was moving in the right direction, while stressing that further progress would be required before an upgrade could be expected.