After 13 years, Moody's Ratings upgraded Cyprus to the A grade - A3 from Baa2 - changing the outlook to stable. Cyprus has significantly reduced its government debt ratio since its peak in 2020, ranking among the countries with the largest debt ratio reductions globally, the rating agency said.

It noted that it has upgraded the Government of Cyprus’ long-term issuer and senior unsecured ratings to A3 from Baa2. Concurrently, they also upgraded the country's senior unsecured medium-term note (MTN) programme ratings to (P)A3 from (P)Baa2. The commercial paper rating and the other short-term rating have been affirmed at P-2 and at (P)P-2, respectively, it said, while noting that the outlook has been changed to stable from positive.

“The two-notch upgrade of Cyprus’ ratings to A3 reflects a material improvement in fiscal and debt metrics that we expect to be sustained”, the rating agency said. Cyprus, it noted, “has significantly reduced its government debt ratio since its peak in 2020, ranking among the countries with the largest debt ratio reductions globally”.

“We expect that the debt ratio will continue to decline over the medium term, with debt affordability metrics remaining favourable”, it said. Additionally, the medium-term economic outlook is solid, driven by the steady expansion of high-productivity services sectors supported by headquartering of companies, net immigration, significant foreign direct investments (FDIs), as well as reforms and investments related to Cyprus' National Recovery and Resilience Plan (NRRP), it added.

Moody’s noted that the stable outlook for Cyprus reflects a balance of risks related to economic, fiscal, and debt prospects. “Moreover, we expect that banking sector risks, which drive our assessment of susceptibility to event risk, will remain contained due to the material strengthening of the credit profiles of Cypriot banks in recent years and the continuation of banking sector deleveraging”, it said.

The rating agency added that Cyprus’ fiscal and debt metrics have significantly improved in recent years and forecasts “continued, though gradually diminishing”, fiscal surpluses for 2024 to 2028.