Petrides: S&P upgrade reflects fairly strong performance of Cypriot economy
Finance Minister Constantinos Petrides on Saturday hailed the upgrade of Cyprus by US rating agency S&P, which revised the country’s credit rating from BBB-/A3 to BBB/A2 with a stable outlook.
“The government will continue to support economic activity given the challenges it faces, including the pandemic, the protracted war in Ukraine and inflationary pressures, in a responsible manner, both in terms of growth and containing unemployment,” Petrides said. .
“In order to achieve this objective, the government supports the Cypriot economy and society in a targeted and flexible way, while promoting the appropriate economic plans which will allow the maximum possible use of European programs and funds, in particular the recovery and the resilience plan,” he added.
“The upgrade reflects the fairly strong performance of the Cypriot economy over the past decade and our assessment that this will continue, despite the effects of the war in Ukraine,” S&P said.
To further underline the agency’s confidence in the Cypriot economy, it also revised its forecast for GDP growth this year upwards to 4.5% from 2.7% previously, noting that “despite fairly with Russia, which should weigh on the business services sector, even if tourism activity remains strong.
He estimates that robust economic growth is expected until 2025, which will be supported by robust domestic demand, the continued recovery of the tourism sector, as well as the support provided by the recovery and resilience plan of 1, 2 billion euros over the period 2021-2026.
Furthermore, according to the report, Cyprus’ stable outlook, diversified economy and resilience to external shocks outweigh the risks posed by the war in Ukraine, with the agency noting that “we expect the fiscal situation to continue to improve”.
While the agency said the war in Ukraine will continue to weigh on the state budget this year, it nevertheless expects the budget deficit to narrow to 0.9%, which it attributes to the measures to support the economy and households in the face of high energy prices.
The agency also noted the resilience of the Cypriot economy in the face of the coronavirus pandemic in 2020 and the strong recovery in GDP of 5.5% in 2021 after a contraction of 5% the previous year.
Moreover, he expects government policy to remain focused on reducing financial vulnerabilities and improving the soundness of the financial sector.
Moreover, S&P expects a sharp decline in public debt by 2025 thanks to fiscal consolidation and buoyant economic activity.
It estimates that by 2025 Cyprus’ public debt will fall to 75% of GDP, with interest payments at around 4% of government revenue, down from 5.4% in 2020.
The report cites the favorable maturity profile of Cypriot government debt, as well as the large liquidity buffers, which cover funding needs for at least the next nine months, thereby significantly reducing short-term funding risk.
However, the upgrade has been limited due to the high levels of public and private debt and the still high ratio of non-performing loans (NPLs) in the banking system, despite their sharp reduction since the 2013 financial crisis.
Noting that the current economic environment is likely to delay improvements in asset quality, the agency said the potential success of the government’s rent-to-mortgage scheme could support mortgages of up to €250,000, reducing thus the NPL ratio of 1.7%. .
However, even without a significant reduction in NPLs, it considers the risk of the banking sector for the state to be moderate.
Source: Cyprus Mail