The rating agency Capital Intelligence (CI) has upgraded Cyprus’s long-term and short-term credit ratings to ‘BBB’ from ‘BBB-’ and A2 from A3, respectively, while maintaining a positive outlook.

The agency, headquartered in Limassol, attributes this upgrade to the ongoing improvement in public finances, including recurring surpluses and a rapid reduction in public debt. It also considers the fiscal targets set out in the Medium-Term Fiscal Framework 2024–2026 to be achievable, ensuring debt sustainability.

“The upgrade reflects the continued improvement in public finances, including recurring fiscal surpluses and the rapid reduction of public debt, with the debt-to-GDP ratio expected to fall below 60% (the Maastricht threshold) by 2026,” CI stated.

The report further notes that the government continues to manage the debt maturity profile to reduce financial risks, while maintaining an increasing cash buffer to address short-term shocks and external negative developments.

CI also highlighted the “significant reduction in macroeconomic imbalances, with the size of the banking sector falling to around 200% of GDP, and the cumulative debt of businesses and households halved over recent years.”

According to CI, the rating also reflects the “proven resilience of the Cypriot economy against rising geopolitical risks, significant progress in strengthening bank balance sheets by clearing non-performing loans, and reducing reliance on external borrowing.”

“As a result, the potential contingent liabilities from the banking sector have significantly decreased in recent years,” CI pointed out.

Moreover, the agency referred to the “very strong” fiscal position, with the fiscal surplus in the first seven months of the year exceeding expectations, reaching 2.2% of GDP. It also forecasts that the fiscal surplus for the year will rise to 2.9% of GDP, despite adjustments in public sector wages.

Finally, CI emphasized the reduction of short-term financial risks, attributed to “solid government fiscal management, a favorable debt maturity profile, low gross financing needs, and prudent policies in building a cash reserve, amounting to nearly 10% of GDP, covering more than 200% of financing needs for at least the next twelve months.”