Cyprus given Stable Outlook and BBB- ratings by Fitch

PUBLICATIONS / Articles / 2019 / Cyprus given Stable Outlook and BBB- ratings by Fitch
Ratings agency Fitch has maintained its assessment of Cyprus' long-term foreign currency issuer default rating (IDR) at BBB- with a stable projection. The appraisal was based on an economic recovery in multiple sectors and a significant budget surplus, but bearing in mind the legacy of crisis involving high public debt and non-performing exposures (NPEs) in the banking sector.

Per Fitch, the cyclical recovery of the economy persisted in 2018, and outperformed the larger eurozone dynamics, with GDP growth steered largely by domestic demand, sizable foreign-financed investments in real estate and tourism and increased private consumption.

Future GDP growth is forecasted to slow down from 2018's level of 3.9 per cent to 3.5 per cent and 2.8 per cent in 2019 and 2020, respectively. The budget surplus is expected to remain above 2 per cent of GDP, due to the prudent fiscal policies and the upwards economic recovery.

Cyprus' gross general government debt (GGGD) remains high at 102.5 per cent of GDP, but is forecasted on a decreasing trajectory, and projections entail a further reduction of GGGD/GDP in the following years until 2026, due to multiple factors including budget surpluses, growth and contained nominal effective interest rates.

The Cypriot banking industry still poses a vulnerability to the larger economy due to the poor asset quality and high ratio of NPEs, affecting capital. This is in spite of the substantial reduction in ratio of NPEs to loans, which is still among the highest in the EU.

Fitch maintains that it remains crucial for Cyprus to address the weaknesses in the banking sector to tackle the root issues and result in an overall restructuring, re-balancing and laying the strong foundations for a better economy for the future.

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