Rating agency DBRS Morningstar confirmed long-term credit rating of Cyprus at BBB (low) with stable outlook. Analysts refer to the fact that the Cypriot economy has shown less than expected decline and that the risks to the ratings are generally balanced, despite the decline due to the Coronavirus pandemic.

“Cyprus’s economy contracted by less than the expected 5.5 percent year on year in the first half of 2020, less than the euro zone average. It is expected that the fiscal surplus will go into deficit, and the ratio of public debt to GDP in 2020 will grow to almost 115% of GDP still under control,” the agency said.

DBRS Morningstar expects Cyprus’ economy to recover from the shock of COVID-19 and the reverse growth of the national debt ratio, although the pace of recovery, especially in the tourism sector, is very uncertain given the ongoing pandemic. Analysts also saw uncertainty regarding the impact of the moratorium on loan repayment on Cypriot banks, while noting that banks remain well capitalized and continued to reduce obsolete overdue loans in 2020.
Other positive features cited included a sound public debt management system, Cyprus’ good reputation for reducing its budget deficit, its membership in the eurozone and its openness to investment.

Commenting on DBRS policy, Cyprus Finance Minister Konstantinos Petrides said the government will continue to support the economy, allowing it and the labor market to return to growth after the pandemic has subsided.