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 13 July 2021. 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 record of robust economic expansion, fiscal consolidation and commitment to structural reform. The 2014-19 period saw robust growth and fiscal performance, placing 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. After a substantial rise in public debt 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 changes in 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 pose contingent fiscal risks; and iii) high levels of public and private indebtedness as well as large external imbalances which increase the economy’s sensitivity to shocks.

The ratings/Outlooks could be upgraded if: i) there is a sustained and material strengthening of the banking sector; ii) the public debt stock is significantly reduced post crisis and/or iii) the economy‘ growth potential is raised sustainably, for instance, through the development of new high-value added sectors. Conversely, the ratings/Outlooks could be downgraded if: i) fiscal discipline is relaxed, leading to a weakening in public finances; ii) there is a fading commitment to or a reversal of structural reforms, leading to an adverse impact on the medium-term economic and fiscal outlooks; and/or iii) banking sector fragilities re-emerge which weaken the country’s growth outlook and/or lead to additional liabilities for the government.

For the updated scorecards accompanying this review, click here.

The methodology applicable for the reviewed ratings and/or rating Outlooks, (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, Senior Analyst.

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