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Cyprus Returns to Investment Grade as Moody's Upgrades Credit Rating

Moody's, the rating agency, has elevated the credit rating of the Republic of Cyprus, marking the country's return to investment grade after 11 years. Back in 2012, Moody's had classified Cyprus as "junk" due to its challenging economic situation. Since then, other rating agencies had already restored Cyprus to investment grade, leaving Moody's as the last to do so.

Cyprus Returns to Investment Grade as Moody's Upgrades Credit Rating

Cyprus' long-term ratings have been upgraded from Ba1 to Baa2. Moody's has also upgraded the senior unsecured (MTN) program ratings and commercial paper rating, indicating an improvement in the country's overall credit profile. The outlook has changed from positive to stable.

This two-notch upgrade is attributed to ongoing improvements in Cyprus' credit profile, driven by economic, fiscal, and banking reforms. Private and public investments, along with structural reforms supported by NextGenerationEU (NGEU), have contributed to the country's stable medium-term growth outlook. Fiscal strength has also improved substantially, with a temporary disruption due to the pandemic.

Despite the positive outlook, there are remaining challenges, including the implementation of investments and reforms related to the Cyprus National Recovery and Resilience Plan. Risks associated with the banking sector and climate change impact on Cyprus are also noted.

Cyprus' resilience to external shocks has been bolstered by economic, fiscal, and banking reforms, diversification in the services sector, and private sector deleveraging. Strong improvements in the labor market, recovery in investment, and productivity growth have contributed to the country's economic growth.

The tourism sector has rebounded, exceeding 2019 revenue levels, and the economy is expected to grow by 2.3% in 2023 and 2.8% in 2024. Ongoing foreign direct investment (FDI) projects and NGEU support are expected to drive further growth, with an average growth rate of 3.2% projected from 2025 to 2027.

Cyprus' debt is expected to decline steadily while maintaining sustainability. The strengthening of the banking sector, as well as improved liquidity and capital ratios, further support economic growth.

However, Cyprus faces challenges related to environmental and social factors, such as water scarcity and climate change impact. The country's efforts to address these issues include investments in renewable energy sources and natural gas exploration.

To achieve further upgrades, faster improvement in fiscal metrics, effective reforms, and reduced exposure to banking sector risks are necessary. Conversely, weaker economic performance, a deteriorating fiscal position, or increased banking sector risks could lead to downgrades.

Moody's upgraded rating reflects the positive economic and financial developments in Cyprus, marking a significant milestone for the country's economic recovery.



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