Scope Ratings reviews its ratings either yearly, or every six months in the case of sovereigns, sub-sovereigns and supranational organisations. Scope performs monitoring reviews to determine whether outstanding ratings remain 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 21 January 2021, incorporating the update from the sovereign methodology. The review resulted in no action on the assigned ratings. This monitoring note does not constitute a rating action nor does it indicate 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

The Republic of Cyprus’s long-term BBB-/Stable ratings are underpinned by the country’s proven track record of robust economic expansion, fiscal consolidation and commitment to structural reform. The 2014-19 period saw robust growth and fiscal performance which placed Cyprus’s debt-to-GDP ratio on a firm downward trajectory. The ability and willingness of the Cypriot government to revive its economy, maintain fiscal discipline and address banking sector vulnerabilities is a key factor supporting its debt sustainability in the context of the Covid-19 crisis. While public debt is projected to rise in 2020-21, Scope’s baseline assumes a return to a declining debt trend supported by a declining interest-payment burden, strong growth and sustained fiscal discipline from 2021 onwards. However, structural challenges remain and threaten to impede the government’s efforts to stabilise 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 constrain the credit supply; 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 in the context of the Covid-19 crisis remain manageable.

For the updated scorecards accompanying this review, click here.

The methodology applicable for the reviewed rating(s) and/or rating Outlook(s) (Rating Methodology: Sovereign Ratings, 9 October 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: Thibault Vasse, Analyst.

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