Fitch affirms Cyprus's long term ratings at B- with positive outlook

GMT 21:01 2015 Sunday ,26 April

Arab Today, arab today Fitch affirms Cyprus's long term ratings at B- with positive outlook

Fitch Ratings agency
Nicosia - XINHUA

Fitch Ratings agency has estimated that Cyprus will not need the full 10-billion-euro (10.8-billion-U.S.-dollar) financial aid granted by its international lenders in March 2013, according to a Fitch statement reaching here on Sunday.

The agency issued positive ratings for the eastern Mediterranean island, affirming its long-term foreign and local currency Issuer Default Ratings (IDRs) at 'B- ' with a positive outlook.

Fitch explained its ratings by saying that recent fiscal over-performance has improved the public debt dynamics, though the sovereign debt stands at around 107.1 percent of the GDP, more than double the 'B' category median of 47 percent.

Besides, it said the strong budget performance implies that the buffers in the program have grown close to 3 billion euros (3.24 billion U.S. dollars) or 17 percent of the GDP and that the underlying trend for public finances has been positive.

The fiscal deficit in 2014 was 0.2 percent of the GDP compared with Fitch's forecast of 3.3 percent in October.

"The over-performance reflects a combination of higher tax revenues and lower-than-expected expenditure across most items. The strong budget execution should help keep future deficits lower," the Fitch statement said.

But Fitch also warned of dangers ahead as the government does not hold a majority in parliament, which has led to a long delay in passing of insolvency and foreclosure laws and underlined possible difficulties in passing required legislation.

"Economic conditions in Cyprus remain challenging, with output forecast to decline by 0.8 percent in 2015, the fourth consecutive year of contraction. The GDP fall of 2.3 percent in 2014 is better than the 3 percent expected by Fitch in October. Private consumption has been more resilient than expected," the statement said.

It further cited the weak position of the banking system as non-performing loans reached an exceptionally high 50 percent of gross loans at the 2014 year end from around 46 percent at the end of April 2014.

Fitch also examined the possibility of Greece exiting the eurozone.

While recognizing 'Grexit' as a material risk, Fitch believes Greece will remain a member of the eurozone.

Although a Greek exit would represent a significant shock to the eurozone that could spark a bout of financial market volatility and dent confidence, Fitch does not believe it would precipitate such a systemic crisis as in 2012.

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