Cyprus debt, division is challenge, says Moody’s

Cyprus enjoys robust economic growth, though a relatively high level of debt and uncertainty surrounding possible reunification of the divided island remains a challenge, Moody's has said in a credit opinion.
Moody's rates Cyprus Aa3 for government bonds and P-1 for commercial paper, with a stable outlook.
Moody's credit opinion, dated July 23, said it expected the general government balance to remain "comfortably in positive territory". The government has projected a surplus of around 0.5% of gross domestic product in 2008, from a property-boom generated 3.3% surplus in 2007.
A high, although declining, level of public debt, and questions on whether fiscal rectitude can be sustained in the face of a rising health and pension bill are factors constraining Cyprus's ratings, Moody's opinion said. Cyprus forecasts a public debt of 49% of GDP in 2008, from 59.8 in 2007.
The government's rating would move upwards with continued fiscal restraint and further structural reforms, while a return to fiscal slippage leading to a renewed and sustained accumulation of public debt could shift the rating downwards, Moody's said.
Political and economic uncertainty on the possible reunification of the island could also be a credit challenge, the credit rating agency said.
"While reunification would likely be beneficial to the economy in the longer term, it would entail significant short term costs," Moody's said.
The two sides have agreed to resume reunification efforts on September 3, ending a four-year stalemate in peace talks. (Reuters)