S&P’s upgrade of the Cypriot economy is a positive development for the country; however, significant challenges remain despite the improved credit rating. Economist Tasos Yiasemides explained on the Alpha News program what the new rating means in practical terms, as well as which points in the report warrant attention.
As he noted, the reduction in public debt, budget surpluses, and positive growth rates in recent years are among the key factors reflected positively in the rating. “The upgrade is considered a positive development for the Cypriot economy as a whole and from a fiscal standpoint,” he noted, explaining that a better credit rating could allow the government to borrow on more favorable terms from the markets, while also making it easier for the banking system to access financing more broadly.
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Despite the positive outlook, Mr. Yiasemidis placed particular emphasis on the negative current account balance, which, according to the report, stands at 8.7%. As he noted, when this figure approaches double digits, it is a cause for concern, particularly for an economy with an “A” rating. At the same time, the report highlights external risks, energy costs, and the extent to which the economy’s current structure can support sustainable positive growth rates over the long term.
Read more: From “A-” to “A”: What S&P’s latest upgrade of Cyprus means, and the promises made by Christodoulides and Keravnos
He also made special mention of inflationary pressures, emphasizing that developments in international energy markets continue to directly affect Cyprus. He noted that developments affecting oil supply and geopolitical discussions surrounding Iran are having an impact on Brent and crude oil prices. “Cyprus, unfortunately, is almost entirely dependent on prices in international markets,” he said, underscoring the Cypriot economy’s vulnerability to fluctuations in energy costs.
Regarding support for households, the economist noted that, should inflationary pressures persist, it may be necessary to reevaluate or extend certain measures. He recalled, however, that the direction at the European level is clear: “They must be targeted; they must be temporary—in other words, they cannot remain in place for a long time.”
The third key criterion, he added, is that any measures must not place such a burden on public finances as to undermine the country’s fiscal path. The challenge, therefore, is to use increased government revenues to provide targeted support to vulnerable groups, without undermining the image of fiscal stability that contributed to the upgrade of the Cypriot economy.
