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DBRS Upgrades Cyprus Credit Rating

  The Dominion Bond Rating Service (DBRS) has upgraded Cyprus’ long-term foreign and local currency issuer ratings from from B (low) to B. Moreover, the credit rating agency has upgraded the island’s short-term foreign and local currency issuer ratings from R-5 to R-4.
The trend on all ratings is Stable.
The upgrade reflects DBRS’s view that strong fiscal performance and signs of economic stabilization have helped to ease near-term concerns regarding the fallout from the financial crisis.
In a press release, the agency noted that Cypriot authorities have demonstrated a strong commitment to the Troika-supported adjustment programme, while available official financing exceeds Cyprus’ needs. “Nonetheless, Cyprus’ B ratings underscore the depth of Cyprus’ challenges and continued need for external support,” it added. “Cyprus remains vulnerable due to high levels of debt, relatively high real interest rates and reliance on external demand to fuel growth.” 
According to the statement, improvements in fiscal management and in debt and liquidity are the main factors driving the upgrade.
"Sustained economic and fiscal outperformance could lead to further upward pressure on the ratings,” DBRS noted. Accelerating progress on the resolution of non-performing loans, on privatization and on steps to encourage foreign investment could enhance growth prospects and also provide support to the ratings, it added.
On the other hand, it expressed that "a prolonged period of weak growth, particularly if combined with fiscal policy slippages and higher financing needs, could result in downward pressure on the ratings. External factors, including political developments between Cyprus and Turkey and between the EU and Russia, could also have an impact on prospects for growth and investment in tourism, financial services and the energy sector."
 
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