S&P warns Cyprus to take action on economy

Ratings agency Standard & Poor's Corp. warned the Cypriot government Wednesday that its credit rating could be lowered if it doesn't take action to protect the economy against fiscal pressures and the growing financial sector when the legislature reconvenes in September, according to a Dow Jones Newswires report.

S&P said part of the problem stems from the government's inability to pass key legislation. Earlier in July, the House Plenum voted against a proposed increase in corporate and immovable property tax, blocking one of the government's measures designed to lower its deficit to 35% of GDP by 2012.

"We query whether the government will be able to push through fiscal consolidation measures that are sufficient to address the significant deterioration in public finances," S&P said.

"We expect to resolve the CreditWatch placement within the next three to four months, during which time we expect it will become clearer what the government intends to do now that it has failed to pass two of its most important policy measures."