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Moody’s upgrades Cyprus’ credit rating to B1

Moody’s Investors Service has today upgraded Cyprus’ government bond rating by two notches to B1 from B3. The outlook is stable.

The key drivers for the upgrade are:

  • The faster than expected economic recovery and the expectation of a continued more broad-based growth that extends beyond exports. Moreover, the economy has demonstrated resiliency to external risks, emanating from Greece (Caa3, stable) and Russia (Ba1, negative).
  • After three years of contraction, real economic growth is expected to reach 1.2% in 2015 and 1.4% in 2016. Moreover, medium-term growth is expected to be more balanced, supported by a recovery in domestic demand helped by a stabilisation of the financial sector, improved competitiveness and the implementation of structural reforms.
  • Consistent outperformance on fiscal targets have led to a quicker reversal in the public debt ratio. A combination of better than expected growth and also strong budget execution underscore fiscal outperformance.
  • Moody’s expects fiscal discipline to continue post programme exit and through parliamentary elections next year. Under Moody’s baseline scenario, the government debt burden will now reach below 100% by next year and around 80% of GDP by 2020.
  • Moreover, Moody’s expects the country to successfully exit the economic adjustment programme (financed by the European Stability Mechanism (ESM) (Aa1 stable) and the IMF) by mid-2016, further supported by the build-up of significant liquidity buffers.

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