Moody’s: Cyprus high wealth, strong growth “remain robust”

Moody’s Ratings said it expects the high wealth levels and strong growth performance of Cyprus, as reflected in the country’s previous A3 issuer ratings, “will remain robust over the medium term”. In its periodic review of its issuer ratings, Moody’s clarified that, “this … does not announce a credit rating action and is not an indication of whether or not a credit rating action is likely in the near future.” In November 2024, the rating agency announced a foreign currency long-term issuer rating of ‘A3’, a short-term commercial paper rating of ‘P-2’ and a ‘stable’ issuer outlook. Moody’s said the A3 ratings “reflect the country’s high wealth levels and strong growth performance, which we expect will remain robust over the medium term, albeit moderating in the near term, as Middle East conflict risks weigh on tourism and feed through to inflation. “While the economy is small, and therefore less resilient to shocks than a larger economy, it has good institutional capacity and policymaking is generally effective. “Public debt levels continue on a sustained downward path — having fallen below the 60% Maastricht threshold — and debt affordability metrics are solid. “While the public finances have improved very significantly, spending pressures associated with infrastructure needs, healthcare costs, the public sector wage bill and ageing costs are an ongoing risk to the future trajectory of the public finances. “Finally, banking sector risks remain a key driver of event risks, though these have been decreasing given structural improvements in the system.” Moody’s added that, “Cyprus’s growth performance has remained in line with our expectations, with real GDP expanding by 3.8% in 2025, supported by the continued diversification of the economy. “Amid a softening in economic performance due to the Middle East conflict, which will adversely affect energy prices and tourism demand, we expect growth to moderate to 2.3% in 2026 before recovering to 2.8% in 2027.” The tourism sector entered 2026 from a position of strength, but a drone attack on the British military base in Akrotiri on March 2 caused sharp near-term disruption, with arrivals falling by 30.7% year on year in March. Moody’s said that, “this risk is partly mitigated by the diversification of source markets, with EU countries now accounting for 42% of arrivals.” ICT, FDIs and relocations It added that Cyprus benefits from a highly productive ICT sector, which accounted for 14.4% of gross value added (GVA) in real terms in 2025, though recent foreign direct investment inflows are also “high-mobility” in nature, and therefore at risk of reversing in spite of relocation costs. The government recorded a fiscal surplus of 3.4% of GDP in 2025 and debt declined to 55.3% of GDP. “We forecast surpluses of 2.3% in both 2026 and 2027, with debt falling to 37.7% by 2030. The expected narrowing of the surplus mainly reflects the comprehensive tax reform enacted in December 2025. “That said, Cyprus faces the significant institutional challenge of managing good economic times with minimal fiscal guardrails, as the EU’s fiscal rules are unlikely to be binding during this period of above-trend growth given the country’s primary surplus and debt burden, that is below 60% of GDP. “Fiscal policy remains procyclical, and structural spending pressures are building — including infrastructure upgrades, persistent deficits at the state Health Services Organisation [Gesy], the Vasilikos LNG arbitration, rising defence spending, and climate-adaptation costs estimated at €3.4 bln through to 2035. The rating agency concluded that, “the principal risk is that several of these pressures crystallise simultaneously. However, the rapid improvement in public finances provides substantial fiscal space to absorb them — the key question is whether the authorities use it proactively.” Following the Moody’s periodic review, President Nikos Christodoulides issued a statement saying, “today’s development strengthens the credibility of Cyprus, supports the confidence of markets and investors, shields our economy against external risks and creates greater opportunities for targeted social policy, for supporting the middle class, for strengthening households, workers, youth and businesses.” He added that, “we continue with a specific plan and with a clear orientation … to further strengthen the resilience of our economy and to transform every positive result into more security, more opportunities and better prospects for citizens and society.” The post Moody’s: Cyprus high wealth, strong growth “remain robust” appeared first on Financial Mirror.