Scope Ratings reviews its ratings either yearly, or every six months in the case of sovereigns, sub-sovereigns and supranational organisations. Monitoring reviews are unrelated to the calendar that outlines public finance rating actions.

Scope performs monitoring reviews to determine whether outstanding ratings remains proportionate. Monitoring reviews are conducted either by performing a portfolio review in terms of the applicable methodology/ies, latest developments, and the rated entity’s financial and operational aspects relative to similarly rated peers; or through targeted reviews on an individual credit. Scope publicly announces the completion of each monitoring review on its website.

Scope completed the monitoring review for the Republic of Cyprus (BBB-/Stable; S-2/Stable) on 30 July 2020. This monitoring note does not constitute a rating action nor indicates the likelihood of a credit rating action in the short term. The latest information on the credit ratings in this monitoring note along with the associated rating history can be found on www.scoperatings.com.

Key rating factors

Scope’s assignment of Cyprus’s BBB-/Stable rating reflects the country’s proven track record of robust economic expansion, fiscal consolidation and commitment to structural reform over the past few years. The 2014-19 period was characterized by robust growth and prudent fiscal performance which placed Cyprus’s debt-to-GDP ratio on a firm downward trajectory. The ability of the Cypriot government to revive its economy and maintain fiscal discipline is a key factor supporting its debt sustainability in the context of the Covid-19 crisis. While public debt is projected to rise substantially in 2020, Scope’s baseline assumes a return to aa declining debt trend supported by strong growth and sustained fiscal discipline from 2021 onwards. However, substantial challenges remain and threaten to impede the government’s efforts to stabilise its debt levels. These include: i) an externally-dependent, concentrated, and service oriented economy which is vulnerable to deteriorating external demand and international investor sentiment; ii) vulnerabilities in the banking sector, with a very high share of non-performing loans, which constrains the credit supply and poses contingent liability risks for the government; and iii) high levels of public and private indebtedness as well as large external imbalances which increase the economy’s sensitivity to shocks. The Stable Outlook reflects Scope’s assessment that the challenges Cyprus faces during the 2020 crisis remain manageable.

The methodology applicable for the reviewed ratings and/or rating Outlooks (Public Finance Sovereign Ratings, 21 April 2020) is available on https://www.scoperatings.com/#!methodology/list.
This monitoring note is issued by Scope Ratings GmbH, Lennéstraße 5, D-10785 Berlin, Tel +49 30 27891-0.
Lead analyst Alvise Lennkh, Executive Director

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