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Upgrade of Cyprus Economy Rating

The Cyprus’ government bond rating has been upgraded by Moody’s to B3 from Caa3.   The outlook on the government bond rating has been changed to stable from positive and affirmed Cyprus’ Not-Prime (NP) short-term rating.

According to Moody’s report, Cyprus has exceeded the targets set with the Troika since in 2013 the primary deficit fell to 2.0 per cent of GDP while the adjustment programme was estimating for a 4.2 per cent. Another contributing factor in the island’s success, according to the report, is the fact that the economic contraction in 2013 and 2014 was not as severe as initially expected.

The reason behind the success and the upgrade lays in two factors: “The consolidation of the government’s fiscal position, as illustrated by an expected return to a primary budget surplus from 2014, and the expectation that public debt relative to GDP will level off in 2015.” The second factor is the “stabilisation of Cyprus’ financial sector through the recapitalisation of troubled banks, which, to some extent, lowers the risk that bank-related contingent liabilities will crystallise on the government’s balance sheet.

In Moody’s view, the economic and fiscal outperformance increases the likelihood of the government achieving the rest of its medium-term fiscal consolidation targets of reaching a primary surplus of 4 per cent of GDP in 2018, and thereby succeeding in its objective of putting debt on a more sustainable path.

Moody’s also estimates that the government’s fiscal deficit will likely come down to around 3 per cent of GDP in 2014, from 4.9 per cent in 2013 and 5.8 per cent in 2012, and that the primary balance will improve by 2 percentage points in 2014, generating about 0.1 per cent of GDP in surplus.

In a statement issued on Saturday, the Republic of Cyprus spokesman especially welcomed Moody’s comments on the economy exceeding Troika’s expectations

“Of course, obstacles still remain and the core problems that led us to the brink of bankruptcy have not yet been resolved. We need to stay the course and stick to the policy we followed this far until a full recovery is achieved and we go back to a healthy, robust economy with growth and prosperity for all citizens,” says the statement.

 
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