Credit rating agency DBRS Morningstar has upgraded Cyprus’s long-term foreign and local currency issuer ratings from BBB (high) to A (low), reflecting the country's sustained fiscal improvements and strong economic performance. The outlook for all long-term ratings remains positive, while short-term ratings were confirmed at R-1 (low) with a stable trend.

The upgrade is primarily attributed to a sharp reduction in Cyprus’s public debt over recent years. According to DBRS, the general government debt-to-GDP ratio fell from 96.5% in December 2021 to 69.7% by September 2024, supported by high nominal GDP growth and significant fiscal surpluses. The European Commission forecasts the ratio to decline further, reaching 64.1% in 2025 and 56.7% in 2026.

DBRS expects this downward trend to continue, citing both cyclical tailwinds and structural revenue-side improvements. Cyprus posted a general government surplus of 4.5% of GDP in 2024, up from 2.0% in 2023, with the latter year impacted by a one-off pension fund payment.

Cyprus’s real GDP grew by 3.4% in 2024, far exceeding the eurozone average of 0.9%. Growth was driven by private consumption, robust employment—particularly among foreign workers—and strong service exports, especially in financial services and IP-related transactions. The Central Bank of Cyprus projects continued growth of 3.2% in 2025 and 3.1% in 2026.

Despite broader global uncertainties, including rising geopolitical tensions and potential U.S. tariffs on EU goods, Cyprus is seen as less exposed due to its small manufacturing sector and services-driven economy.

DBRS highlighted improvements in the domestic banking sector, noting increased capital buffers that enhance financial stability. Additionally, structural enhancements—particularly in monetary policy and liquidity management—were credited for supporting the upgrade.

The positive rating outlook reflects confidence in Cyprus’s ability to maintain fiscal discipline and economic momentum. A further upgrade is possible if debt continues its downward path and productivity strengthens.

However, the rating remains constrained by structural vulnerabilities. Cyprus's small, open, service-based economy makes it susceptible to external shocks, especially in tourism and foreign capital inflows. Productivity levels also lag behind the EU average, with nominal GDP per employed person reaching only 89.2% of the EU27 average in 2023.

DBRS also acknowledged moderate governance risks, including corruption and political challenges, but noted Cyprus's EU membership continues to support institutional quality.

While the economy is projected to grow steadily, DBRS warns of potential downside risks. A shift in fiscal performance, an unexpected rise in contingent liabilities—especially in the banking sector—or a slowdown in global demand for services could reverse the positive trend.

Still, the agency emphasizes that Cyprus’s current fiscal and macroeconomic trajectory places it in a strong position, with opportunities for further credit enhancement if momentum continues.