Cyprus Finance Ministry has stressed the need for immediate adoption of financial consolidation measures in order to ease the consequences from a potential credit rating lowering by Standard & Poor’s due to Eurozone crisis.
According to an official announcement, issued here Tuesday by Finance Ministry, Standard & Poor’s Rating Services have announced on Monday that it maintain the long-term sovereign credit rating on the Republic of Cyprus to ‘BBB’. In addition, S&P’s have also maintained the CreditWatch negative status of the long-term rating on Cyprus and placed its short-term ratings on CreditWatch with negative implications.
According to S&P’s the reason for that decision, except from the need for financial consolidation measures and the Cypriot banking system’s exposure to Greek bonds, is the deepening of the political and financial crisis in Eurozone.
S&P’s conceive that this crisis in Eurozone works restrictively to the lending capability of the Republic of Cyprus and reduces the prospects for economic growth.
In addition, S&P’s believe that the weakness of the European political leaders to monitor the financial crisis reflects structural weaknesses on decision making process within the Eurozone and the EU with negative consequences on the effectiveness of Cyprus’ economic policy.
Standard & Poor’s CreditWatch review of Eurozone sovereign ratings will focus on political and monetary scores that S&P’s assign to the governments in the Eurozone. S&P’s will conclude a review of Eurozone sovereign ratings as soon as possible following the EU summit scheduled for December 9, 2011.
The Ministry of Finance noted that Cyprus’ sovereign credit rating is possible to lower by two credits, something that is linked with the S&P’s review.
Standard & Poor’s Rating Services lowered on October 27, 2011 its long-term sovereign credit rating on the Republic of Cyprus to ‘BBB’ from ‘BBB+’. In addition, S&P’s lowered the short-term sovereign credit rating on Cyprus to A-3 from A-2.
On November 18 the Finance Minister introduced a third fiscal consolidation package aiming at restoring Cyprus' credibility in the international markets. The package provides for the freezing of salary increases in the public sector (including COLA) for two years, with a yield of 355 million EUR, a scaled contribution of high earners in the private sector and the introduction of a 0.5% levy on the turnover of companies with local activities for two years.
