Cyprus's Credit Rating Confirmed at 'A-' by Fitch, Citing Strong Public Finances

Strategic Insights -

Cyprus has received a positive endorsement from the international credit ratings agency Fitch, which confirmed the country's long-term rating at 'A-' with a stable outlook. The agency praised strong public finances, falling debt levels, and steady economic growth, citing a high primary budget surplus of 4.3 per cent of GDP in 2024 and a sharp drop in public debt, from 73.6 per cent of GDP in 2023 to 65.3 per cent by the end of last year.

Key Takeaways:

  • Fitch confirmed Cyprus's long-term rating at 'A-' with a stable outlook, citing strong public finances, falling debt levels, and steady economic growth.
  • Cyprus continues to outperform many countries in the same rating group, with a high primary budget surplus of 4.3 per cent of GDP in 2024 and a sharp drop in public debt.
  • The surplus reached 5.6 per cent, the highest in nearly two decades, helped by rising revenues and controlled spending.
  • Debt is expected to fall further, reaching 52.6 per cent in 2026 and potentially close to 45 per cent by 2030, provided current trends continue.
  • Cyprus's robust economic performance is supported by a strong services sector and a healthy labour market, with growth projected at 3 per cent for both 2025 and 2026.
  • The agency highlighted ongoing vulnerabilities, including a high current account deficit, expected to stay around 7 per cent of GDP in the coming years.
  • Cyprus's banking system is described as stable, with a key capital strength ratio (CET1) of 24.5 per cent, the highest in the EU.
  • Non-performing loans have dropped to 6 per cent, a sign of continuing recovery.
  • Ongoing changes in governance, the island's political division, and external threats such as global instability and regional conflicts are considered long-term risks.
  • Future upgrades will depend on further debt reduction and a narrowing of the external deficit.
  • A worsening in public finances or a sharp external shock could lead to a downgrade.

Statistics:

  • Primary budget surplus: 4.3 per cent of GDP in 2024.
  • Public debt: 73.6 per cent of GDP in 2023, 65.3 per cent by the end of last year, expected to fall to 52.6 per cent in 2026 and 45 per cent by 2030.
  • Current account deficit: 7 per cent of GDP, expected to stay around this level in the coming years.
  • Labour market performance: Unemployment dropped to 4.5 per cent, near record lows, with employment rising by 2 per cent in 2024.
  • Growth projections: 3 per cent for both 2025 and 2026, slightly below the 3.4 per cent seen in 2024.
  • Banking system: Key capital strength ratio (CET1) of 24.5 per cent, the highest in the EU.
  • Non-performing loans: Dropped to 6 per cent, a sign of continuing recovery.

Sources:

  • Fitch, "Fitch Confirms Cyprus's Long-term Rating at 'A-' with Stable Outlook" (no date).
  • Ministry of Finance, Cyprus, "Statement on Fitch's Report" (no date).