The new downgrading of Cyprus’ sovereign credit rating by Ratings agency Standard and Poor’s was unfortunately something the government had expected, Acting Government Spokesman Christos Christofides said.
He said the agency rating refers to the bank crisis due to the exposure of Cypriot banks to the Greek bonds and the loans from Greece and dismissed suggestions that the latest downgrading is the absence of a memorandum with the Troika (European Commission, European Central Bank and IMF).
Standard and Poor’s has downgraded Cyprus’ sovereign credit rating three notches to `B` from `BB`, just two months after a previous downgrade.
The agency issued a press release on Wednesday expressing its opinion that “Cyprus’ creditworthiness has deteriorated significantly since our last downgrade on Aug. 2, 2012, as domestic political constraints have prevented a timely agreement with the EU, IMF, and ECB (the "Troika") on a financial support package, while external and fiscal risks have risen”. Additionally, in the agency’s opinion, “the government’s increased dependency on treasury bill issuance is increasing its refinancing risk”.
Christofides said the main comment of the agency concerns the amount which may be needed to support the banks, which threatens to increase the public debt and create the need for its restructuring.
The government, he added, has worked all this time with a high sentiment of responsibility and consensus with a view to form a common Cyprus position of the political parties and the social partners and there have been positive developments towards this direction.
Christofides assured that the government will do its utmost to secure the interests of Cyprus and its people.
Cyprus has applied for financial assistance from the EFSF/ESM to recapitalize its banking sector severely hit by the haircut of the Greek sovereign debt, as well as to cover its refinancing needs. A Troika team is expected in Cyprus next week to agree on the final adjustment programme which provides salary cuts both for the public and the private sector and a slash of the state spending. Economists say that such a programme will result in deep recession that would prompt the state to impose new austerity measures.
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