Fitch affirms Cyprus' long term rating at "BBB-"

Source: Xinhua| 2019-04-14 04:59:54|Editor: yan
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NICOSIA, April 13 (Xinhua) -- International ratings agency Fitch has affirmed Cyprus' long-term foreign currency issuer default rating at "BBB-", maintaining a stable outlook, according to a report by the agency made available on Saturday.

The agency also cited the high rate of non-performing exposures still burdening the balance sheets of commercial banks as the reason for not assigning an A rating to Cyprus, which would be justified by the country's economic performance.

In the rating, Fitch said the buoyant cyclical recovery of the economy continued in 2018, significantly exceeding Eurozone dynamics, with a GDP growth of 3.9 percent, expected to be 3.5 percent this year and 2.8 percent in 2020.

"The combination of prudent fiscal policy stance and buoyant cyclical recovery resulted in a further improvement in the budget balance," the agency's report said, adding the general government surplus, excluding one-off items, reached 3.2 percent of GDP in 2018 from 1.8 percent in 2017 and 0.3 percent in 2016.

"Cyprus has the largest budget surplus among Eurozone members and the surplus is also significant compared with a category median of a 2.3 percent deficit," it added.

It also forecast that the budget surplus is forecast to remain above 2 percent of GDP in 2019 and 2020, well above the requirements of the EU fiscal rule.

The agency also noted that Cyprus' gross general government debt is very high at 102.5 percent of GDP.

Cyprus' debt, which was on a firm downward trajectory, recorded an increase in 2018 because of a 3.19 billion-euro rise in the form of a government bond issued.

"According to our debt dynamics simulation, although the primary surpluses are expected to decline, they will remain substantial, and combined with robust growth and contained nominal effective interest rates will reduce the public debt to 70 percent of GDP by 2026," Fitch added.

The agency said the banking sector remains a weakness and remains among the highest in EU, due primarily to the weak asset quality and high non-performing exposures ratios that are still weighing on capital, though they decreased substantially from 43.7 percent at end of 2017 to 32 percent at end-November 2018.

Fitch also said that a recent court decision declaring unconstitutional fiscal consolidation measures taken at the peak of the 2013 economic crisis could add additional burdens on the public payroll, and could lead to lower budget surpluses until 2022, but would not undermine the downward debt trajectory.