Fitch has upgraded its outlook for the Cypriot economy to positive from stable, confirming the Republic of Cyprus’ rating at “A-”, with President of the Republic Nikos Christodoulides and Finance Minister Makis Keravnos expressing their satisfaction.
Also, credit rating agency Moody’s issued a periodic review, without making any change to the credit rating of the Republic of Cyprus, noting that this decision does not indicate whether a rating action is likely in the near future.
“We continue with the same sense of responsibility,” President Christodoulides wrote in a post on X, citing the new Fitch assessment for Cyprus, while Finance Minister, Makis Keravnos, welcomed with “particular satisfaction” the two new credit assessments of Cyprus by Moody’s and Fitch. He noted, in a written statement, that the foreign rating agencies “seem to trust” the rational policies consistently implemented by the government of the Republic of Cyprus, which are driving the excellent performance of the Cypriot economy.
According to a press release by the Ministry of Finance, Fitch’s move “is considered a precursor to a future upgrade, provided the forecasts in the relevant report materialise.”
Moody’s refers to the existing A3 rating for Cyprus, which “reflect the country's high wealth levels and strong growth performance, which we expect will remain robust over the medium term,” the Ministry notes.
Fitch
The American agency stated that the revision of Cyprus’ outlook reflects several key rating drivers.
According to the Ministry, the change in outlook occurred, according to Fitch, due to the rapid reduction in public debt during the period 2022–2025 and because this reduction is expected to continue during 2026–2027, with public debt falling below the 60% of GDP benchmark (55.4%) in 2025, making it lower than the EU median.
This debt reduction, according to Fitch, represents a decline of nearly 70 percentage points since its peak in 2020, "one of the fastest reductions among Fitch-rated sovereigns."
“With debt projected to come down to around 40% of GDP over the medium term, debt-financing needs will remain low,” the agency stressed.
The change in outlook also occurred due to ongoing fiscal surpluses, which are projected to continue through 2025–2027 with an average of 3.2%, and due to “strong fiscal growth,” which Fitch projects at 3.4% for 2025, while maintaining growth close to 3% for 2026–2027 and near 3% in the medium term. By comparison, growth in the Eurozone is expected to be 1%.
Additionally, the positive outlook is attributed to the very strong labour market, with unemployment falling to pre-2009 levels.
According to Fitch, wage pressures have remained contained and are expected to stabilise, reducing risks to competitiveness. Also, harmonised inflation was only 1% in January-October, among the lowest rates in Europe.
Fitch identified the public finances, macroeconomic data, and developments in the balance of payments as the main factors that could influence Cyprus’ future rating either positively or negatively.
The agency maintained Cyprus at a high rating level with potential for further upgrades, recognising the strong economic performance of recent years as well as the favourable prospects despite significant global economic and geopolitical challenges.
The credibility Cyprus has gained regarding fiscal discipline and rational economic policies is a key factor for additional future upgrades, the agency noted.
Moody’s
In a separate press release, the Ministry of Finance stated that, according to Moody’s, the Republic of Cyprus has strong institutional capacity and effective policymaking. Public debt levels continue on a sustained downward path and the government continues to run large fiscal surpluses. According to Moody's, the country’s growth has remained strong, supported by the diversification of the economy. Tourist arrivals have returned to pre-pandemic levels with revenues hitting all-time highs, while the banking sector’s stability is supported by large capital buffers and sufficient liquidity.
“The stable outlook reflects a balance of risks related to economic, fiscal, and debt prospects,” Moody’s stated, noting that risk sensitivity is shaped by “banking-sector and political risks,” which the agency considers “contained.”
Although non-performing loans remain in the economy, the number that remain in the banking sector are on a firm downward path and banks "generally display large capital buffers and improved profitability."
However, Cyprus faces a number of credit challenges, including the small size of the economy. While the public finances have improved very significantly, spending pressures associated with the public sector wage bill and ageing costs are an ongoing risk to the future trajectory of the public finances. Finally, banking sector risks remain a key driver of event risks, though these have been decreasing given structural improvements in the system.
The Ministry added that, according to Moody’s, further upgrades could occur if, among other conditions, fiscal and debt indicators outperform the agency’s expectations, and if medium-term growth is higher than anticipated.
In his written statement, Minister Makis Keravnos said that in its periodic review, Moody’s maintains the Republic of Cyprus’ investment-grade rating of A3, which reflects the country’s high level of prosperity and strong growth rates expected to continue in the medium term.
Fitch, the Minister added, also maintains the Republic of Cyprus’ investment-grade rating at “A-”, while simultaneously improving the economic outlook from stable to positive.
This move, according to Keravnos, “is considered a precursor to a future upgrade, as the positive trajectory of public finances, macroeconomic indicators, and the balance of payments is expected to allow the agency to place Cyprus at a higher level of its investment-grade scale.”
He added that the Government “recognises the seriousness of the challenges within an unstable and difficult international environment marked by geopolitical turbulence, which is why it works in a coordinated and methodical manner to build a resilient economy, a fairer society, and a sustainable future for all.”
“Our economic policy is people-centred, balanced, and prudent, based on the principles of fiscal stability and social justice—something that is recognised internationally and is reflected in the consistently positive assessments of Cyprus’ creditworthiness by all major rating agencies in recent years,” Keravnos concluded.
(Source: CNA)
