S&P Raises Cyprus Sovereign Credit Rating to A with Positive Outlook

S&P Global Ratings has upgraded Cyprus’ long-term and short-term sovereign credit ratings from A-/A-2 to A/A-1, while maintaining a positive outlook for the long-term rating. The decision, announced on 18 September 2026, places Cyprus in the A rating category for the first time since 2010.

The upgrade applies to Cyprus’ long-term and short-term credit ratings in both local and foreign currency. The positive outlook means that the long-term rating remains subject to the possibility of a further change based on developments in the factors assessed by S&P.

S&P cited continued fiscal and external deleveraging as key factors behind the rating action. The agency's assessment indicates that Cyprus has continued to reduce government debt while maintaining fiscal surpluses, supported by economic growth and government revenue performance.

According to the rating assessment, net government debt is projected to decline to approximately 31% of GDP by 2029, compared with 97% of GDP in 2020. S&P expects Cyprus to record fiscal surpluses averaging slightly below 3% of GDP through 2029, resulting in net general government debt declining to slightly above 30% of GDP over the same period.

The reduction in public debt follows several years of fiscal surpluses. S&P had previously reported that Cyprus recorded general government surpluses from 2022 onwards and expected fiscal surpluses to continue through the medium term. The agency's November 2025 assessment projected an average fiscal surplus of 3.3% of GDP for 2025–2028.

The agency also identified Cyprus' external position as a factor supporting the rating. External debt has been declining, while services exports and foreign direct investment inflows have provided financing for the country's external position. S&P noted that reinvested earnings and other foreign investment inflows have continued to offset substantial imports of goods and primary-income outflows.

S&P forecasts real GDP growth of 2.7% for Cyprus in 2026. According to the assessment, domestic demand is expected to become a more important source of growth, supported by rising real wages and investment associated with projects financed through the European Union's Next Generation EU programme.

The agency also expects Cyprus to continue recording fiscal surpluses over the coming years. The combination of economic growth, government revenue and expenditure control is expected to support further reductions in government debt relative to GDP.

The external position remains an area identified by S&P in its assessment. Cyprus has recorded current-account deficits in recent years, but the agency noted that these have largely been financed through net foreign direct investment rather than additional debt. S&P expects the current-account deficit to widen to approximately 8.7% of GDP in 2026 before narrowing to slightly above 7% of GDP between 2027 and 2029.

The rating assessment also addresses the economic effects of the conflict in the Middle East. S&P expects the direct effects on Cyprus to remain limited, although disruptions are expected to continue into 2027. The agency identifies potential effects on tourism, inflation and energy-import costs as factors affecting the country's external accounts.

The positive outlook reflects the possibility of further improvement in Cyprus' external financial position. S&P stated that the rating could be raised if external vulnerabilities decline more rapidly than currently projected, including through accelerated external deleveraging or a broader export base with increased activity in higher-value business and information, communication and technology services.

The upgrade follows an earlier decision by S&P in November 2025 to revise Cyprus' long-term rating outlook from stable to positive while affirming the A-/A-2 ratings. At that time, the agency cited continued public-debt reduction, fiscal surpluses, economic expansion and the decline in external debt.

In its previous assessment, S&P reported that Cyprus had recorded a general government surplus equivalent to 4.1% of GDP in 2024. The agency also noted that government debt, net of liquid government assets, had been declining and projected it to fall to approximately 35% of GDP by 2028 from 56% in 2024.

The November 2025 assessment also recorded that Cyprus' gross government debt had fallen below the 60% Maastricht Treaty threshold by September 2025 for the first time since 2010. S&P noted that the country's Public Debt Management Office had used budget surpluses and government cash holdings to repay maturing debt, including obligations arising from the European Stability Mechanism.

The latest rating action moves Cyprus one level higher within the investment-grade category. The new A/A-1 ratings place the country above the previous A-/A-2 level, while the positive outlook remains attached to the long-term sovereign rating.

The Cyprus Ministry of Finance welcomed the decision, stating that the upgrade increases the country's position within the investment-grade category. The ministry also linked the rating action to Cyprus' fiscal performance, economic growth and continued reduction in public debt.

The latest decision follows a series of improvements in Cyprus' sovereign credit assessments in recent years as public debt has declined and fiscal balances have strengthened. The country's A rating from S&P represents its return to that rating category after more than a decade.

Cyprus' new A/A-1 sovereign ratings and positive outlook will remain subject to S&P's future assessments of fiscal performance, economic growth, external financing conditions and the country's broader financial position.

By fLEXI tEAM