Moody’s assigns A2 rating

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Moody’s, the international rating agency assigned Cyprus’ credit

quality rating in foreign currency at A2 (“medium”) on the back of the high standard of living, low inflation and the low unemployment environment.

Moody’s pointed out that the reduction of Cyprus’ public debt is critical for the improvement of its credit quality. Moody’s identified a number of structural problems, and in particular the sustainability of Cyprus’ fiscal finances, which put pressure on its credit quality.

Specifically, the agency acknowledged the significant improvement made by the Cyprus Government in reducing its fiscal debt, but at the same time they remain skeptical on issues related with the rising pension and health costs as well as the increased pressure placed from trade unions on possible payroll increases.

In addition to Cyprus’ high public debt, Moody’s highlights that other credit challenges include:

(1) the gradual decline of the competitiveness of its tourist product, (2) its sensitivity to geopolitical events in the region,

(3) the supervision and quality of the loan portfolio of its

banking institutions,

(4) the bad management of certain government bodies and (5) the political uncertainty of the Cyprus issue.

According to Moody’s, the above rating could be revised: (a) upwards should a sustainable improvement in fiscal finances lead to a significant decline of the public debt or (b) downwards if fiscal finances lead to a further accumulation of public debt and/or Cyprus’ relations with the Turkish community in the north deteriorate thereby increasing the risk of a conflict.