By Stelios Orphanides<\/p>\n
Fitch Ratings, one of the three main rating companies, said that Cyprus will not require support from the European Central Bank\u2019s public sector purchase programme in order to maintain market access after completing its economic-adjustment programme this month.<\/p>\n
Fitch, which upgraded Cyprus\u2019s sovereign rating to B+ in October and is scheduled to review the island on April 22, added that \u201cthe outlooks on the ratings are positive\u201d.<\/p>\n
\u201cThe government\u2019s cash buffer, at over \u20ac1bn as of end-January 2016, will cover the country\u2019s financing needs of around \u20ac1bn for 2016,\u201d the rating agency said.<\/p>\n
\u201cDebt-management operations aimed at extending maturities further reduce refinancing risks during this post-programme period. In November 2015 Cyprus raised \u20ac1bn on the international capital markets and used around half of the proceeds to buy back existing debt\u201d.<\/p>\n
Cyprus\u2019s sovereign rating remains below investment grade, which makes it ineligible to participate in the ECB\u2019s quantitative easing, following the completion of its adjustment programme . The yields of the Cypriot 10-year government bond fell on Tuesday to 3.91 per cent after several weeks of hovering slightly above 4 per cent. Cyprus\u2019s highest rating is BB-, assigned by Standard & Poor\u2019s, which is three notches below investment grade.<\/p>\n
The ratings assigned by Fitch and Moody\u2019s Investor Service, which upgraded Cyprus in November to B1, are four grades into the speculative area, while the Canadian rating company DBRS assigned Cyprus a B rating, five grades below investment-grade.<\/p>\n
Fitch said that economic recovery is underway after the economy grew 1.6 per cent last year boosted by low energy prices, a weak euro, stronger demand mainly for tourism services and improved sentiment.<\/p>\n
\u201cRisks include a weak, albeit improving, housing market and a credit-impeding public and corporate debt overhang that could take years to unwind,\u201d the rating company said. \u201cProgress in banking sector reform has been made, but implementation is dependent on the political will to confront debtors, which could wane in the run-up to parliamentary elections in May.<\/p>\n
The foreclosure law, passed in 2015 along with a new insolvency framework, lies at the heart of efforts to reduce the banking sector\u2019s exceptionally high stock of non-performing exposures\u201d.<\/p>\n
The government performed better than expected with respect to its finances, generating a deficit of 0.5 per cent of the economy last year, and is projected by Fitch to generate budget surpluses of around 0.2% and 1% of gross domestic product for 2016 and 2017, respectively,\u201d Fitch said.<\/p>\n
This will allow public debt to drop to 100 per cent of the economy by 2017 after peaking at 109 per cent in 2016, \u201creducing its ability to absorb domestic or external shocks,\u201d Fitch said.<\/p>\n
<\/p>\n
Source: Cyprusbusinessmail.<\/a><\/p>\n