Rating agency Moody’s has said that the outcome of the Presidential elections in Cyprus “suggests the continuation of a fiscal discipline and reform progress,” noting that reunification talks may be “potentially hindered by the stricter line of smaller parties that supported the new president.”

Former Foreign Minister Christodoulides, described by the agency as independent and moderate, has won the run-off ballot last Sunday, garnering 51.9% of the popular vote, beating fellow independent candidate Andreas Mavroyiannis, a negotiator of the country's reunification talks during 2015-17 and who the left-wing Progressive Party of Working People (AKEL) backed.

“Christodoulides' term in office will be five years and we expect him to form a government with wide appeal,” the agency said in it is bi-weekly bulleting titled “Credit outlook.”

The agency said it expects that the new government "will comprise technocrats, members of the small centre parties that supported him, and potentially members from his former party, the ruling Democratic Rally (DYSI),” noting that “we expect the Christodoulides administration will try to maintain Cyprus' prudent fiscal policy along with economic reform policies.”

“We expect the new administration to follow a prudent fiscal stance,” the agency added.

Recalling that harmonised consumer price inflation was 6.8% in January 2023 and averaged 8.1% for full-year 2022, Moody’s added that Christodoulides has announced that any additional support to help households and businesses with the energy and cost of living crisis would need to be targeted, “without allowing fiscal discipline to slip.”

The agency also noted that the incoming president has also argued in favour of a gradual expansion of the Cost of Living Allowance, against the more radical demands of private-sector labour associations to avoid weakening the economy's price competitiveness.

“We expect a greater emphasis on long-term solutions to diversify Cyprus’ energy mix, which relied on imported oil and petroleum products for 83% of its total energy supply in 2021, with biofuels and renewables comprising 13%,” Moody’s added.

According to the agency, apart from focusing on the expansion of renewables, the incoming administration is focused on completing energy diversification projects, such as the Vasilikos LNG gas facility, the Euro-Asia Interconnector project (connecting the power grids of Cyprus, Greece (Ba3 stable) and Israel (A1 positive)), and fast-tracking the development of some proximate offshore gas discoveries.

Moody’s also recalls that Christodoulides’ pre-election campaign included pledges of ongoing support for the reforms package under the NextGen EU programme, as well as for the new national healthcare system, a key reform enacted by the previous administration.

The agency also recalls that Christodoulides managed to gather support from the leadership of the three small parties of the political centre and centre-left, Democratic Party (DIKO), Democratic Front (DIPA) and Socialist Party (EDEK), as well as parties and groupings that did not manage to enter Parliament.

“Crucially,” Moody’s pointed out, “Christodoulides also attracted substantial voters from the ruling, conservative DISY party: he was a DISY party member until very recently and was foreign minister under DISY party leader and outgoing President Nicos Anastasiades.”

On the Cyprus problem, the agency said the new President promised a renewed effort to resolve the long-standing Cypriot reunification talks with the goal of achieving a bizonal, bicommunal federation and pursuing the EU's active involvement in the diplomatic resolution process.

“Nonetheless, any talks will be difficult and potentially hindered by the stricter line of smaller parties that supported the new President,” Moody’s added.

Furthermore, the agency said that “the electoral outcome of the first round of the presidential elections on 5 February was a blow to the other major candidate, Averof Neofytou, the current DISY President,” as he failed to qualify for the runoff with only 26% of the vote, compared with 29.6% for Mavroyiannis and 32% for Christodoulides.

“It was the first time that DISY had not been included in a presidential election runoff. It is uncertain whether DISY, which holds the largest number of seats in Parliament with 17 out of the 56 seats, will support the new president's agenda,” the agency said, recalling that the party opted not to specifically align with either of the two candidates in the runoff and instead issued a call to its supporters to choose their vote freely.