Nicosia: The rating agency S and P Global Ratings upgraded Cyprus' long-term and short-term credit ratings in local and foreign currency from 'A-/A-2' to 'A/A-1', assigning a positive outlook to the long-term rating.

According to Cyprus News Agency, the Cypriot economy is expected to continue growing, leading to strong fiscal revenues that will allow further public sector deleveraging over the coming years. The notable increase in exports of services, particularly in information technology and intellectual property rights, has bolstered the country's export base. Strong inflows of foreign direct investment have mitigated the accumulation of private-sector external debt despite high current account deficits, while fiscal surpluses have facilitated a sharp reduction in the public sector's external debt.

Public debt is reported to be decreasing both as a percentage of GDP and in absolute terms, supported by strong economic growth, robust tax revenues, and expenditure control. S and P forecasts budget surpluses averaging slightly below 3% of GDP until 2029, reducing net public debt to a level slightly above 30 percent of GDP over the same period.

Economic growth is projected to average just under 3% until 2029, supported by resilient domestic demand, which benefits from a strong labor market, rising real incomes, and significant public and private investment, including the utilization of funds from the 'Next Generation EU' programme. The Cypriot economy has remained resilient despite regional conflicts in Russia-Ukraine and the Middle East. Oil prices are forecast to rise in 2026 and 2027 but are expected to remain manageable for Cyprus, despite its heavy reliance on oil imports for electricity generation.

Strengthening energy security remains a top priority for the Cypriot government, particularly given the current geopolitical climate. The completion of the liquefied natural gas (LNG) terminal at Vasiliko is seen as a crucial medium-term solution for mitigating energy risks. Once operational, the terminal could facilitate the transition away from diesel-fired power stations and significantly reduce energy costs, while also addressing the low share of renewable energy sources on the island. The terminal's timetable remains uncertain due to frequent construction delays, jeopardizing its planned commissioning towards the end of 2027.

Reference is made to the 'Great Sea Interconnector' electricity project, which aims to connect Cyprus's electricity grid with those of Greece and Israel. This project remains on hold due to disputes with Turkey, despite EU funding being secured for the majority of the project.

Regarding inflation, the agency expects it to average 3.8% this year, given that Cyprus remains particularly vulnerable to fluctuations in oil prices, despite the extension of reduced VAT rates on fuel until 2027.

In the banking sector, S and P reports that the average non-performing loan ratio continued to fall, reaching 1.6% in December 2025, below the European average. The volume of domestic credits increased for the first time in 2025 by 2.5% following years of decline, and a further increase is expected.