International credit rating agency Moody’s upgraded Cyprus’ credit rating from Caa3 to B3. Alongside that, it revised the outlook of the economy from positive to stable, while maintaining the short-term assessment of Cyprus (Not-Prime).
According to the rationale of Moody’s, the upgrade reflects the progress made by the Government in addressing the key challenges of the country, so far, with regard to macroeconomic stability of the banking sector.
As mentioned, the upgrade reflects the improvement in the fiscal position of the government as reflected in the estimate of a return to a primary surplus by 2014, and the reduction of public debt relative to GDP, in 2015.
It also reflects the stabilization of the financial sector in Cyprus through the recapitalization of troubled banks, which to some extent reduces the risk of liabilities associated with banks, to be reflected in the state budget.
It should be noted, however, that Cyprus still faces significant credit challenges, including less favorable economic outlook and the very high rate of non-performing loans in the banking sector.
