DBRS Ratings GmbH (Morningstar DBRS) upgraded late on Friday the Republic of Cyprus' (Cyprus) Long-Term Foreign and Local Currency - Issuer Ratings from A (low) to "A" and changed the trend from Positive to Stable. At the same time, it confirmed Cyprus' Short-Term Foreign and Local Currency - Issuer Ratings at R-1 (low). The trend on all Short-Term ratings remains Stable.
Morningstar DBRS said in a press release that ‘the upgrade reflects the sharp decrease of the public debt burden in recent years and Morningstar DBRS' expectation that public debt metrics will continue to materially improve over the next few years.’ It further noted that ‘general government debt decreased to 64.3% of GDP in March 2025 from 96.5% in December 2021, driven by large budgetary surpluses and high rates of nominal GDP growth on the back of strong domestic demand and rising service sector exports.’
Looking ahead, Morningstar DBRS noted that it expected the public debt-to-GDP ratio to remain on a firm downward trend as the government budget is likely to continue to register large surpluses and the economic outlook remains favourable. ‘Fiscal accounts benefit not only from cyclical tailwinds but also from structural improvements on the revenue side, such as the upswing in corporate income tax revenues due to the relocation of several companies to Cyprus,’ it pointed out.
‘The government's Annual Progress Report from April 2025 forecasts the general government's annual budget surplus at 3.5% of GDP in 2025 and at 3.7% in 2026-2028. Taking into account these large fiscal surpluses, general government debt is projected to decrease to 43.3% of GDP in 2028. The credit rating action is supported by an improvement in the "Debt and Liquidity" building block,’ the press release added.
‘The Stable trend reflects Morningstar DBRS' view that the risks to the credit ratings are balanced. Cyprus' ratings are supported by a stable political environment, the strong financial condition of the domestic banking sector, the government's sound fiscal and economic policies in recent years, and a moderate interest burden,’ Morningstar DBRS said. Furthermore, although governance indicators have weakened over the past years, Morningstar DBRS noted that it continued to view the country's EU membership as an important anchor for institutional quality.
‘On the other hand, the credit ratings of Cyprus continue to be constrained by the small size of its service-driven economy, which renders it vulnerable to external shocks, the economy's still comparatively low level of labour productivity, and the large current account deficit of the non-SPE economy, the press release concluded.
CNA/PH/EPH/2025
ENDS, CYPRUS NEWS AGENCY
