Capital Intelligence Ratings (CI Ratings or CI), the international credit rating agency, today announced that it has affirmed the Republic of Cyprus’ Long-Term Foreign Currency Rating (LT FCR) at ‘BB+’ and its Short-Term Foreign Currency Rating (ST FCR) at ‘B’. The LT FCR Outlook remains Positive.
RATING RATIONALE
The ratings and outlook reflect the continued strong performance of the economy, declining unemployment, improving public finances and the ongoing recovery of the banking sector. In addition, legislative and structural reforms have helped to increase Cyprus’ institutional strength. The ratings are constrained by the private sector’s large debt hangover, the still high level of non-performing exposures (NPEs) in the banking sector, as well as continued delay in implementing key – yet politically sensitive – structural reforms, including privatisation and reducing the size of the public sector.
The economy continued to recover in 2019, albeit at a slower pace, with real output growth expected at 3.6% (3.9% in 2018), exceeding its pre-crisis size in nominal terms. Growth was broad based and underpinned by robust domestic consumption. On a sectoral basis, the services (mainly professional services, health and education) and construction and real estate sectors continued to post high growth. The unemployment rate continued to decline, reaching a better than projected 8.4% in 2018, down from 16.1% in 2014. Employment growth has been positive since 2016 and youth unemployment remains on a declining trend, reaching a multi-year low of 14.5% in Q2 2019.
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