Nicosia welcomes recognition of economic performance, as Fitch maintains Cyprus’ ‘A-’ Rating

Fitch Ratings has affirmed Cyprus’ long-term credit rating at ‘A-’ with a stable outlook, citing strong fiscal performance and resilient economic prospects.

The Ministry of Finance welcomed the decision as a recognition of the country’s consistent economic path despite global uncertainty, while President Nikos Christodoulides, in a post on X, stressed the government’s commitment to fiscal responsibility, a robust financial system, and bold reforms.

“We continue responsibly, based on the three pillars: fiscal responsibility, a strong financial system, and bold, ongoing reforms,” President Nikos Christodoulides posted on X.

Fitch Ratings has reaffirmed Cyprus’ Long-Term Foreign Currency Issuer Default Rating (IDR) at ‘A-’ with a Stable Outlook, citing strong fiscal outturns, falling public debt, and resilient economic growth, while acknowledging ongoing external vulnerabilities and geopolitical risks.

According to Fitch, Cyprus’ rating is underpinned by income per capita above the 'A' category median and the credibility of policies associated with EU and eurozone membership. These advantages are offset by relatively weaker governance indicators, persistent external imbalances, and the continued political division of the island.

It is also noted that the country posted a fiscal surplus of 4.3% of GDP in 2024—well above the ‘A’ category median deficit of 2.8%—supported by strong revenue growth and restrained spending. The primary surplus reached 5.6%, the highest level in nearly 20 years. Debt-to-GDP fell sharply from 73.6% in 2023 to 65.3% at the end of 2024 and is projected to drop further to 52.6% by 2026 and near 45% by the end of the decade.

While Fitch expects budget surpluses to decline modestly to 3.4% in 2025 and 3% in 2026 due to rising capital investment and softer nominal growth, fiscal performance remains robust. Cyprus’ status as a non-NATO member also reduces pressure to increase defence spending, though challenges remain in infrastructure and aging-related costs.

The agency forecasts GDP growth of 3% over 2025–2026, slightly lower than 3.4% in 2024, with continued strength in the services sector and labour market. Employment growth hit 2% in 2024 and unemployment fell to 4.5%, near historic lows.

Despite these positives, Fitch highlighted that Cyprus continues to run a high current account deficit (CAD), estimated at 6.9% of GDP in 2024 and projected to remain around 7% in 2025–2026—among the highest in the EU. However, Fitch noted that foreign direct investment is more than sufficient to finance the gap, and is increasingly diversified across sectors.

Fitch also mentioned that the Cypriot banking sector remains stable, with a Common Equity Tier 1 ratio of 24.5%—the highest in the EU—and a decline in non-performing loans to 6%.

Fitch said upward rating momentum could result from a further sustained decline in public debt or reduced external vulnerabilities. Conversely, a deterioration in public finances or exposure to external shocks could prompt a downgrade.

Ministry of Finance: Recognition amid geopolitical challenges

The Ministry of Finance welcomed the Fitch Ratings decision to maintain Cyprus's credit rating at ‘A-’ with a Stable Outlook, describing it as a recognition of the country's consistent fiscal trajectory and positive economic prospects despite the uncertain geopolitical and economic landscape.

“In an uncertain geopolitical environment and ongoing economic uncertainty stemming from recent developments in global trade, Fitch maintains the Republic of Cyprus at a high level, recognizing the strong economic performance of recent years and the very positive outlook for the near future, despite major challenges both in the immediate region (Middle East crisis, war in Ukraine) and in the broader geopolitical landscape (imposition of tariffs, disruption of international trade),” the Ministry noted in a press release.

It added that maintaining the current path, focused on fiscal discipline and sound economic policies, is a key factor for future upgrades, ensuring even greater competitiveness and stability in the Cypriot economy.

The Government, committed to its policies, strongly supports the economy in a responsible and flexible manner both in terms of growth and employment, as well as public finances, the Ministry stated.

“In light of the challenges facing the Cypriot economy due to developments in the global economic-political environment,” the press release concluded, “the government will continue to implement economic plans that allow for the maximum possible use of all available opportunities for continuous growth, while also targeting a further reduction in public debt.”

(Source: CNA)