Nicosia: Morningstar DBRS's recent upgrade of Cyprus' outlook was described as "expected" by Andreas Charalambous, Chairman of the Cyprus Fiscal Council, who emphasized that the nation's strong fiscal position offers a unique opportunity to tackle enduring structural challenges. He cautioned, however, about potential fiscal risks associated with pension reforms and the forthcoming pre-election period, with the next Cypriot presidential election scheduled for February 2028.
According to Cyprus News Agency, Charalambous commented on the rating decision by the Canadian credit rating agency, stating that it was a foreseeable outcome reflecting Cyprus' positive macroeconomic data and robust fiscal standing. He highlighted that the forthcoming Fiscal Council report, set for release in mid-September, emphasizes the opportunity provided by Cyprus' fiscal strength to address persistent structural issues, including economic characteristics, social inequalities, and climate change challenges.
Charalambous also addressed the agency's revision of Cyprus' long-term ratings trend from 'stable' to 'positive', suggesting it indicates progress in the right direction and potential for a future upgrade if current trajectories are maintained. He noted that Cyprus has historically experienced fiscal fluctuations, and foreign rating agencies are seeking prolonged stability and strong performance before considering further upgrades.
DBRS outlined potential reasons for future upgrades, including a further reduction in the public-debt ratio, evidence of increased economic resilience, and improved labor productivity. Charalambous linked productivity improvements to investments in technology and artificial intelligence, as well as continuous workforce training, while acknowledging the limits of growth driven by migration.
Regarding pension reform, Charalambous discussed the need for gradual implementation to avoid jeopardizing the downward trajectory of public debt. He emphasized the importance of establishing capable investment institutions by 2026-2027 and beginning surplus investments in 2028 to benefit pensioners.
Charalambous also warned against pre-election spending overruns, urging the maintenance of sound fiscal policies during such periods. He commented on DBRS's observation of milder-than-expected impacts from the Middle East conflict on Cyprus' economy, attributing this to investments in the technology sector and consumer demand from migration-driven population growth.
Finally, Charalambous addressed Cyprus' decline in corruption and rule-of-law indicators, stressing the importance of addressing such issues to maintain the country's attractiveness for foreign investment. He highlighted the need for improvements in the justice system and combating corruption to enhance economic performance.