Nicosia: Capital Intelligence Ratings (CI Ratings) has affirmed the Long-Term Foreign Currency Rating (LT FCR) of the Republic of Cyprus at ‘BBB+’ and the Short-Term FCR (ST FCR) at ‘A2′, with the outlook remaining stable.
According to Cyprus News Agency, CI Ratings stated that the ratings reflect a significant strengthening of public finances, characterized by a consistent decline in fiscal risks in the short to medium term. This positive trend is largely attributed to persistent government budget surpluses, low financing needs, and a steady reduction in government debt.
CI Ratings noted that effective management of Cyprus’ debt maturity profile has mitigated refinancing risks. A substantial cash buffer provides a robust safeguard against potential near-term economic shocks and external challenges. The ratings are further supported by a gradual reduction in contingent liabilities related to the banking sector and an improvement in the resilience of Cypriot banks.
The agency highlighted Cyprus’ robust econ
omic growth, which is among the strongest in the euro area, as well as high GDP per capita, significant foreign direct investment inflows, and the benefits of EU and euro area membership. These include access to the Recovery and Resilience Facility (RRF) resources.
However, CI Ratings pointed out several structural challenges that continue to constrain the ratings. These include large current account deficits, elevated external debt, high external financing needs, and geopolitical risks. Additional constraints involve a substantial stock of non-performing loans (NPLs), slow progress on structural reforms, and medium to long-term fiscal pressures due to the General Healthcare System (GHS) and an ageing population.
Public finance data from the Ministry of Finance (MoF) shows a reduction in the general government debt-to-GDP ratio to 61.7% in July 2025, down from 65.1% in December 2024. This improvement is supported by strong budget surpluses and economic activity. The debt is expected to fall further in the c
oming years, with manageable debt maturities posing no significant refinancing challenges.
CI Ratings also highlighted the diminishing short-term refinancing risks due to sound fiscal management and a favorable maturity structure. The government maintains significant cash reserves, providing a buffer against potential financing needs.
Despite the positive outlook, CI Ratings cautioned that risks could arise if fiscal discipline weakens, particularly if government spending outpaces revenue growth. Medium-term fiscal pressures may also emerge from large investment projects, such as the delayed liquefied natural gas terminal and the Great Sea Interconnector.
Additional fiscal risks stem from contingent liabilities, including state-guaranteed debt and rising GHS costs. The GHS Fund posted a modest surplus in 2024, but rising expenditures due to demographic factors are expected to affect its financial performance in the short to medium term.
The banking sector’s risks continue to decline, with a decrease in it
s size relative to GDP and a reduction in the NPL ratio. The sector remains well-capitalized, with strong liquidity and profitability ratios.