London – Fitch Ratings has upgraded Cyprus’ Long-Term Foreign-Currency Issuer Default Rating (IDR) to BB+ from BB with a positive outlook. The rating is just one step before the investment scale.

Fitch said the upgrade was the result of the country’s strong cyclical economic recovery and prudent fiscal policy but pointed out that weakness in the banking sector is still a risk to public finances.

Minister of Finance, Harris Georgiades said progress being made by the country is being recognised.

“We still have difficulties that we must face.  But our country’s progress is being recognised.  And we can lift Cyprus even higher, as long as we continue the effort with confidence, consistency, and collective responsibility,” Georgiades tweeted.

In a press release last weekend Fitch said: “We forecast the government will continue recording fiscal surpluses of 1.1% of GDP in 2018 and 2019, after over-achieving is fiscal target in 2017 with an estimated surplus of 1.9% of GDP, compared with a BB median fiscal deficit of 3.2%.”

Fitch said that future developments that may, individually or collectively, lead to an upgrade include the reduction in banking sector Non-Performing Loans (NPLs) that materially reduces the sovereign`s contingent liabilities, track record of declining GGGD/GDP ratio and continued deleveraging of the private sector.

It added that it does not currently anticipate developments with a high likelihood of leading to a downgrade. However, it said that future developments that may individually or collectively lead to negative rating action include failure to improve asset quality in the banking sector and deterioration of budget balances or further materialisation of contingent liabilities that results in the stalling of the decline in the government debt-to-GDP ratio.

In its key assumptions, Fitch noted that gross government debt-reducing operations such as future privatisations are not considered in Fitch’s baseline scenario. The projections also do not include the impact of potential future gas reserves off the southern shores of Cyprus, the benefits from which are several years into the future.

“We forecast the government will continue recording fiscal surpluses of 1.1% of GDP in 2018 and 2019, after over-achieving its fiscal target in 2017 with an estimated surplus of 1.9% of GDP, compared with a BB median fiscal deficit of 3.2%,” it said.