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16 June, 2024
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Cyprus economy holds steady amid challenges

Growth and stability hold firm against risks, according to DBRS ratings


According to a report by Panayiotis Rougalas, Canadian credit rating agency DBRS Ratings GmbH (Morningstar DBRS) has affirmed the Republic of Cyprus's long-term ratings, maintaining it at BBB (high) with a stable economic outlook. Amid global uncertainties, DBRS cited risks such as the Ukraine conflict and trade disruptions in the Red Sea, which could impact Cyprus's fiscal outlook. Downgrade possibilities loom if sovereign debt worsens due to prolonged weak growth, increasing fiscal pressures, or expanding bank liabilities.

Cyprus's small, service-based economy remains susceptible to external shocks, compounded by challenges like non-performing loans and low labor productivity. Key sectors include trade, tourism, finance, and real estate, with a growing presence in technology. Despite robust economic growth, Cyprus's labor productivity lags behind the EU average.

Plans for a bond issue in April aim to bolster Cyprus's economic performance. Fitch and Standard & Poor's are poised for potential upgrades, while Scope and Moody's maintain a stable outlook. Fiscal pressures arise from public sector wage adjustments, health organization deficits, and expanded responsibilities, though Cyprus's fiscal trajectory remains positive overall.

Steady economic growth in 2023, supported by strong private consumption and investment, contributed to a reduced public debt-to-GDP ratio. General government debt fell to 77.4% of GDP in 2023 from 85.6% in 2022, aided by fiscal surpluses and GDP growth. Despite weakened governance indicators, Cyprus's EU membership reinforces institutional quality.

President Nikos Christodoulides's election in February 2023 signaled policy continuity, particularly in fiscal and reform efforts. Initiatives target judiciary and public administration efficiency, anti-corruption measures, and green and digital transitions. DBRS's affirmation underscores Cyprus's stable political environment and sound economic policies, positioning it for continued growth.

Cyprus  |  economy

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