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Global credit rating agency DBRS Morning Star said it is monitoring the situation in Cyprus following the rejection of the 2021 state budget by lawmakers on Thursday, warning that a protracted process to approve the budget could affect economic sentiment and could eventually weigh on economic activity.
The DBRS Vice President Javier Rouillet told the Cyprus News Agency that the first-ever rejection of a state budget will not have an immediate impact on the Republic of Cyprus, “as the agency has “already incorporated in the ratings the fact the government lacks a majority in the House of Representatives, which makes the passing of legislation difficult.”
Roulliet noted that Parliament has already passed “stopgap measures” to bridge the gap for January, adding that “political parties have until the end of February 2020 to reach a compromise.”
“However, we will continue to monitor the potential impact on the government’s ability to function fully if this situation becomes protracted,” Rouillet said.
Responding to a question over a credit risk event in the near future, Rouillet said “the probability that this particular situation alone will trigger a credit risk event is low,” pointing out that there are interim measures in place and the Cypriot constitution allows interim budget management, albeit with certain limitations.
He also said that “given the importance of the budget to support the recovery of the economy, a political compromise seems likely.”
“At the moment, we do not foresee a credit event in the near term, but we will continue to monitor the situation,” DBRS Vice President added.
Asked whether he sees any impact on the economy and economic activity in short to medium term, Rouillet said “maybe not in the short term, but a protracted process to approve the budget could affect economic sentiment and could eventually weigh on economic activity.”
“Like in most countries in Europe, fiscal and economic measures are needed to support the recovery of the economy from the pandemic,” he concluded.
DBRS had upgraded Cyprus’ credit ratings to investment-grade in November 2018.
