Cyprus Outlook Revised to Positive

Standard and Poor’s rating agency affirmed the rating of Cyprus’s long-term and short-term sovereign credit at BB+/B but revised the outlook to positive from stable, a statement issued overnight on Saturday said.

The statement added that the positive outlook reflects that the agency could raise the ratings on Cyprus over the next 12 months if budgetary consolidation continues unabated, and the economy continues to recover toward pre-crisis output levels, Xinhua reported.

Standard and Poor’s was the first agency to rate Cyprus to the junk level in January, 2012, leading to a downward spiral that was checked by a €10 billion ($11.94 billion) bail-out by the Eurogroup and the International Monetary Fund in March 2013.

The agency projects that GDP growth will average 3% between 2017 and 2020, as investments and employment recover, and services exports continue to perform well.

It said this is higher than its previous expectation of 2.5% over the same period, and well above the forecast eurozone average of 1.7%. It also projects that growth tailwinds will facilitate bad loan restructuring by banks.

Standard and Poor’s said that the ratings on Cyprus are constrained by the economy’s high degree of leverage, which is evident in both public and private sector balance sheets and its impaired banking system.

On the bright side, Cyprus’s ratings are supported by income levels, with a per capita GDP among the highest in the “BB” category, and the ongoing economic recovery that is anticipated will allow for a gradual reduction in general government and private sector debt.