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All eyes on Cyprus’ next evaluation by credit rating agencies

April 10, 2019 at 10:05am
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Days only after an administrative court’s decision to reverse civil servants’ wage cuts and all eyes are now set on upcoming evaluations on Cyprus by international credit rating agencies.

Fitch Ratings is expected to issue its report on the Cyprus economy’ state of play on Friday.

And all this while the salary issue is pending before the Court of Appeals and measures drafted by the Ministry of Finance to counter the decision’s consequences are still under consideration.

Last October, Fitch had upgraded Cyprus’ sovereign rating to investment grade with a stable outlook as the island expected continuous growth.

This meant that no change in grading should be expected over the next 12-15 months, but of course this assessment was made prior to the crucial decision by the administrative court.

Undoubtedly, all rating agencies will now also consider the decision’s unavoidable fiscal burden in their next assessments.

And this in addition to the other important issue pointed out by all rating agencies which is the big burden on banks and the economy in general from non-performing loans in Cyprus.

Up until now, two of the big such agencies appear to be restrained in their reports. Moody’s analysts still have Cyprus two levels below investment grade.

At their last meeting on March 29, they did not issue an announcement on Cyprus and, thus, remained the toughest of the four international agencies evaluating the small EU country.

Standard and Poor’s maintained the same rating for Cyprus on March 8,  when they reassessed the credit worthiness of the Republic of Cyprus. And DBRS rating agency will issue the year’s first evaluation for Cyprus on May 17.

Meanwhile, a repetition of prudent fiscal policy measures is what the Finance Ministry is working upon in order to neutralise the impact of the court’s recent ruling.

Another discussion focusing on this issue is set to take place on Monday between the President of the Republic and parliamentary party leaders – this time in the presence of the Attorney General as well.

He is expected to inform the political leadership on the legal aspects of the matter and appeals that will be submitted.

The possibility of amending the Constitution’s Article 23 which protects movable or immovable property is to be thoroughly discussed at the meeting. Along with other serious legal issues, such as retrospective payments etc.

The administrative court’s judgment on March 29 provided that a freeze of incremental pay rises, a 3 per cent contribution to pensions, and a reduction in civil servants’ pay was in violation of article 23 regarding the protection of the right to property.

The fiscal consolidation measures affecting the public sector, passed by parliament before Cyprus agreed the terms of its 2013 bailout with international creditors, included a general wage and hiring freeze, a 10 per cent drop in hiring salaries, and a permanent up-to 12.5 per cent reduction in pay.

 

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