Moody's on Sept. 20 affirmed Cyprus' Ba2 sovereign ratings due to its "small but wealthy economy," increased economic resilience and fiscal triumph despite a banking crunch.
"We now forecast that debt will fall to 97% of GDP this year and, due to sizeable primary surpluses and ongoing low funding costs, it will continue to fall by around 5 percentage points per annum, to around 75% by the end of 2023," the rating agency noted.
Moody's also affirmed the states' long-term issuer and senior unsecured ratings at Ba2 and program ratings at (P)Ba2. It also changed the outlook on the ratings to positive from stable as Cyprus' exposure to event risk drops in spite of ongoing improvements in bank asset quality and fiscal strength surpassing expectations.
The affirmed sovereign ratings "balances the credit-supportive factors such as wealth, improved economic resilience, and a recent track record of fiscal outperformance against constraints such as institutions that are weaker than European peers, a lack of economic diversification, high debt across all sectors of the economy, and still-high non-performing exposures (NPEs) in the banking system," according to Moody's.
Additionally, the rating agency affirmed the states' short-term ratings at Not Prime (NP) and (P)NP as its long-term local- and foreign-currency bond and bank deposit country ceilings remain unaffected A2. The short-term foreign-currency bond and bank deposit country ceilings remain at P-1.
Moody's also upholds a six-notch cap between the government bond rating and the bond and deposit ceilings.
