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DBRS raises rating trend on Cyprus to positive

DBRS Ratings confirmed Cyprus' long-term foreign and local currency issuer ratings at BB (low) and changed the trend to positive from stable.

The revised trend reflects the expectation that Cyprus will maintain its solid fiscal and economic performance, leading to a further decline in its government debt-to-GDP ratio, DBRS said.

The rating agency is projecting Cyprus' real GDP growth to hit 3.7% in 2017, up from the previous estimate of less than 3%. Growth is forecast to be around 3% in 2018 and 2019.

"Growth has been broad-based, with tourism, shipping, professional services, manufacturing, and construction contributing to growth. The outlook is for a continued solid recovery in the coming years, driven by consumption, investment, and exports," DBRS said.

DBRS also raised its forecast for the fiscal surplus to 1.0% of GDP in 2017 from 0.2%. The surplus is expected to rise above 1.3% over the next two years.

Cyprus' government debt ratio is set to fall below 100% in 2017, a year earlier than initially estimated by the government, according to DBRS.

DBRS said an upward rating action would be justified if Cyprus sustains its healthy economic growth and sound fiscal position, which would continue to drive the expected decline in the public debt ratio.

The rating trend could be changed back to stable due to a period of significantly weak growth, combined with large fiscal imbalances, DBRS said.