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Moody's: Revised Cyprus' outlook from stable to positive

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Confirm rating at Baa2

Moody's: Αναθεόρησε τις προοπτικΕς τη σουαεσεικς /></p>
<p>The international rating agency Moody's Ratings on Friday upgraded the outlook for the Cypriot economy to positive from stable, at the same time confirming the long-term assessments of the country's creditworthiness at Baa2.</p>
<p>As reported by the agency, its decision to upgrade Cyprus's outlook reflects its confidence in the potential for strong fiscal outcomes in relation to public debt in the coming years. This optimistic scenario is expected to result from the continuation of prudent fiscal policies and strong medium-term economic growth prospects.</p>
<p>Moody's expects Cyprus to continue to achieve significant fiscal surpluses, forecast at around 2.3-2.4% of GDP for 2024-25, although slightly lower than the government's forecast of 2.8-2, 9% of GDP. These surpluses are expected to further reduce the debt burden to less than 65% of GDP by 2025.</p>
<p>Affirming the rating at two notches above investment grade (Baa2) balances several factors. On the one hand, notes the house, Cyprus benefits from high levels of prosperity, strong GDP growth trend, strong institutional capacity and effective policy making. On the other hand, the country faces challenges due to its small economic size, relatively high public debt burden and moderate sensitivity to risks related to the banking sector and geopolitical issues.</p>
<p>It is noted that the fact that the economy of Cyprus is small and strongly oriented towards services contributes to the instability of development, although it notes that various sectors such as tourism, business, information and communication technology, higher education and shipping are included. . This volatility, the rating agency notes, affects economic strength, despite high income levels and strong GDP growth trends.</p>
<p>It is also reported that Cyprus' strong institutional capacity and effective policy-making have been demonstrated by its vigorous management of the coronavirus pandemic and the macroeconomic fallout from the Russia-Ukraine war. Institutional strength, it adds, is further supported by recent anti-corruption and judicial reforms.</p>
<p>The confirmation also reflects Cyprus's relatively high public debt burden, albeit with a strong downward trend, compared to other Baa2-rated countries. This is balanced by favorable measures of debt affordability which are expected to remain stable in 2024-2025, with modest gross financing requirements and a substantial cash reserve providing the government with significant financing flexibility. In addition, the confirmation takes into account Cyprus' moderate sensitivity to geopolitical risks.</p>
<p>The confirmation also reflects Cyprus' relatively high public debt, although it is on a significant downward trend, compared to other countries with the same rating. This is balanced by favorable debt service metrics, which are expected to remain stable in 2024-2025, with moderate funding needs and a substantial cash buffer that provides the government with great flexibility in funding.</p>
<p><strong>Factors enhancing the evaluation</strong></p>
<p>As reported effective cost containment could reinforce these results if Cypriot authorities manage to control public wage growth, resist changes to cost of living allowances and limit pressures on health care spending.</p >
<p>It is also reported that demographic trends suggest that health care spending may rise faster than expected, posing a challenge to state budgets.</p>
<p>However, faster debt reduction could improve debt service beyond Moody's current expectations, strengthening Cyprus' fiscal strength.</p>
<p>As reported, Moody's forecasts for growth of around 3% per year over the next few years are based on strong investment. However, the implementation of major foreign direct investment projects, particularly in energy, education, health care and tourism, along with investments and reforms related to the National Recovery and Resilience Plan, could yield a stronger than forecast economic outlook. </p>
<p>It is also reported that further confidence in the strengthening and deleveraging of the banking sector could also exert upward rating pressure. It is noted that since Moody's last assessment, the intrinsic strength of Cypriot banks has improved and deleveraging has continued, reducing potential risks from the banking system to the state's balance sheet. A stronger banking sector, it is reported, could better support the Cypriot economy especially in times of recession.</p>
<p><strong>No environmental and social risks are recorded</strong></p>
<p>The House reports also that the parameters concerning the environment, society and governance do not materially affect the creditworthiness of Cyprus.</p>
<p>He notes that Cyprus faces chronic water shortages and rising temperatures. The country, he adds, is addressing water shortages with infrastructure projects such as dams, desalination plants and water treatment plants. He adds that although Cyprus has great potential for solar energy, the share of renewable energy sources is below the EU average. The economy's dependence on imported oil is mitigated by European funds supporting the green transition, with limited risks due to the low-carbon intensity and service-oriented nature of its economy, the house says.</p>
<p>It also considers Cyprus to have a low exposure to social risks, despite moderate negative effects from demographic trends and labor issues. He adds that continued immigration and the integration of skilled foreign workers are critical to dealing with an aging population. Projections show population growth until the late 2060s, with the working population remaining stable until the late 2040s. Challenges include skills mismatches in the labor market, particularly in digital literacy and lifelong learning.</p>
<p>At the same time, Cyprus' high performance in the Global Governance Indicators and effective crisis management are noted. As reported, reforms in the economic, fiscal and banking sectors following the eurozone debt crisis have strengthened its institutional capacity, while eurozone membership provides stability for macroeconomic and monetary policies.</p>
<div class=Source: www.kathimerini.com.cy

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