NICOSIA, May 21 (Xinhua) -- Cyprus faces significant credit challenges related to its still sizable non-performing exposures in the banking sector, high levels of private and public sector debt, external imbalances, and the small size of its service-driven economy, which exposes Cyprus to adverse changes in external demand, according to a report published on Tuesday.
DBRS rating agency said in a follow-up report after a recent sovereign rating announcement on Cyprus that its ratings on Cyprus, which were left unchanged at BBB (low) and the Short-Term Foreign and Local Currency - Issuer Ratings at R-2 (middle) with all ratings at stable, could come under upward pressure from sustained healthy economic growth and sound fiscal position.
These, the report said, would contribute to the downward trajectory in the public debt ratio.
DBRS said that further progress in substantially reducing banks' NPEs and private sector debt, and the strengthening of the banking sector would be positive for the ratings.
But it cautioned that the ratings could come under downward pressure in a period of significantly weak growth, combined with large fiscal imbalances. A reversal of the downward trajectory in NPEs could also be negative, it said.
"Cyprus is an attractive business services center, shipping center, and tourist destination. The tourism sector is diversifying into new products and markets, making it more resilient," DBRS added.
It also said that the expected exploitation of off-shore gas reserves expected to begin around 2025, represents another potential source of growth in the longer term but the small size of its service-driven economy exposes Cyprus to adverse changes in external demand.
Finance Minister Harris Georgiades said he was satisfied with the DBRS report as it confirmed Cyprus at an investment grade, adding that this does not lead him into complacency, as the effort for a stable economy must continue.
