German agency maintains Cyprus at BBB+ amidst stability
German credit rating agency Scope has completed its periodic review of the Cypriot economy, opting not to issue a rating action, citing no significant changes that would impact the assessment of the creditworthiness of the Republic of Cyprus.
The agency had initially noted that May 10 had been designated as one of the potential dates for the issuance of a rating action for this year.
In addition, the agency originally upgraded Cyprus’ credit rating to BBB+ with a stable outlook in November of 2023.
In its latest report, Scope expressed its belief that Cyprus’ long-term BBB+ rating is supported by solid economic fundamentals and strong developmental momentum, with one of the highest growth rates in the eurozone, robust fiscal trajectory, commitment to structural reforms, and ongoing improvements in the financial sector.
For the current year, the German agency estimates that GDP growth will accelerate to 2.8 per cent, up from 2.5 per cent in 2023.
Additionally, it stated that Cyprus’ GDP growth in 2025 will reach 3 per cent, aligning with the country’s GDP potential.
What is more, Scope expects that fiscal performance will remain robust with primary surpluses, excluding debt servicing expenses, averaging in excess of 3 per cent during the 2024-2029 period, ranking among the highest in the EU.
Moreover, it expects public debt to maintain a steadily declining trajectory, falling from 77.3 per cent of GDP last year to below 50 per cent by 2029, representing a reduction of over 40 per cent over a ten-year period.
However, it emphasised that there are challenges in assessing Cyprus, which are linked to its status as a small open economy, dependent on the external environment.
The agency said that these challenges include persistent but improved vulnerabilities in the banking sector, which are reflected in still high levels of non-performing loans, alongside sensitivity to shocks due to significant macroeconomic imbalances, manifested in high levels of private and public debt combined with the external position.
The agency also said that its next scheduled potential assessment date is October 25.
Meanwhile, it should be noted that the Cypriot Finance Ministry last week said that its own estimates project a GDP growth of 2.9 per cent for 2024, marginally higher than the German agency’s 2.8 per cent.