NICOSIA – As Cyprus struggles with an ongoing economic crisis, an influx of money from international lenders as part of a 10 billion euro ($13.67 billion) bailout has led Standard and Poor’s to raise the long-term sovereign debt ratingl believing there is a smaller chance it will default on its its sovereign debt.
The agency raised its long-term and short-term sovereign credit ratings to B-/B from CCC+/C but that’s still considered junk status as state banks are seeing deposits flee despite capital controls. Still, the boost could be seen as a boost to efforts for early economic recovery as the island is struggling to rebuilt its economy.
“In our view, the immediate risks to Cyprus’s program implementation to full and timely repayment of debt service appear to have receded,” said a statement by Standard and Poor’s.
Cyprus was cut from international markets in the middle of 2011 after international rating agencies had repeatedly downgraded the ability of the island’s government to receive and service loans, citing deteriorating public finances and the possibility of troubles for its oversized banking system because of its extensive exposure to the Greek debt.
“The stable outlook reflects our view of the implementation risks that remain as the end of the three-year European Commission, International Monetary Fund, and European Central Bank (Troika) program approaches, balanced against the upside potential we see coming from Cyprus’ economy,” Standard and Poor’s said.
It said the Cypriot economy will shrink less than it originally forecast. It also expects authorities to stick to the terms of a painful rescue deal agreed on in March with other Eurozone countries and the International Monetary Fund which led the government to confiscate 47.5 percent of bank accounts over 100,000 euros ($137,000) in an unprecedented raid on private depositors to make them pay for the banks mistakes. No bank executive has been held accountable.
Cypriot President Nicos Anastasiades hailed the upgrade, saying that it’s indicative of a gradual return of confidence in the economy although he initially opposed the bailout terms, then embraced them, then said he wished he could change them, then gave up on that and accepted them again.