DBRS Ratings GmbH, the European division of global agency Morningstar DBRS, confirmed the Republic of Cyprus long-term foreign and local currency – issuer ratings at “A”, as well as the short-term foreign and local currency – issuer ratings at R-1 (low), maintaining the trend on all ratings at ‘stable’.
Morningstar DBRS said the ‘stable’ trend reflects the view that the risks to the credit ratings are balanced, as the Cypriot economy’s growth momentum remained strong over the past year.
Real GDP expanded by 3.8% in 2025 on the back of strong domestic demand and rising service exports. At the same time, the recent increase in hostilities in the Middle East has raised uncertainty over Cyprus’ short-term economic outlook given the island’s geographical proximity to the region. This applies particularly to the tourism industry, which has been an important driver of growth in recent years.
Furthermore, potential high-for-longer energy prices might weaken households’ purchasing power and, as a result, private consumption.
“The scale of potential negative repercussion of the conflict on the Cypriot economy depends in large part of the duration and the intensity of the conflict,” the Morningstar DBRS rating review said.
“Nevertheless, Cyprus has large fiscal buffers to weather potential negative repercussions of the conflict. Fiscal accounts registered recurring surpluses in recent years with the general government’s annual budgetary surplus averaging 2.8% of GDP between 2022 and 2025. This favourable fiscal performance resulted not only from cyclical tailwinds which bolstered public revenues, but also from structural improvement on the revenue side.
“Moreover, general government debt has decreased markedly in recent years, amounting to a moderate 60.6% of GDP in September 2025.”
Morningstar DBRS added that the Cyprus credit ratings are supported by the government’s strong fiscal performance in recent years, the strong financial condition of the banking sector, and a stable domestic political environment.
Furthermore, although governance indicators are weaker than those of most EU peers, Morningstar DBRS views the country’s EU membership as an important anchor for institutional quality.
On the other hand, the credit ratings of Cyprus continue to be constrained by the small size of its service-driven economy, which renders it vulnerable to external shocks, the economy’s still comparatively low level of labour productivity and the economy’s large current account deficit.
Looking ahead, the rating agency said the draft budget 2026 from October 2025 forecasts the general government budget surplus at 3.0% of GDP in 2026, based on the expectation that economic growth dynamics will remain strong and bolster public revenues.
While the ongoing conflict in the Middle East has raised uncertainty over future fiscal outcomes, Morningstar DBRS currently does not expect a sharp weakening in fiscal accounts.
“The financial condition of the banking sector has improved in recent years and is now assessed as strong. Banks’ capital buffers have risen markedly as a temporary increase in net interest income boosted banks’ retained earnings,” the rating agency said, adding that the political environment in Cyprus is stable.
With respect to the reunification talks supported by the United Nations, Morningstar DBRS currently assumes that the chances of a significant breakthrough remain limited.
