Cyprus' creditworthiness has received a boost by Moody's Investors Services after it upgraded its ratings by two notches to B1.
Moody's cited the faster than expected economic recovery and the outperformance of fiscal targets. The upgrade came on Friday as technocrats representing international creditors completed their last review of Cyprus' economic adjustment program, but Moody's announcement was made available in Nicosia on Saturday.
The two-notch upgrade came as a pleasant surprise to the Cypriot Finance Ministry because Moody's previous rating in November 2014 was B3 on stable outlook. "Moody's usually assigns a positive outlook to a country before an upgrade," said a ministry official. Cyprus is about to exit a three year economic adjustment program after it was accorded a 10-billion-euro (10.8 billion U.S. dollars) bailout by the Eurogroup and the International Monetary Fund in March 2013.
The eastern Mediterranean island was able to issue a bond maturing in 7.5 years worth 1 billion euros at a yield of 4.25 percent. Moody's affirmed Cyprus' short-term rating to not-prime.
"The first driver of Moody's decision to upgrade Cyprus' rating to B1 is the faster than expected economic recovery, and the expectation that the export sector will continue to demonstrate resilience and will now be augmented by growth in domestic demand, " Moody's statement said.
It added that Moody's believes that structural reforms that improve competitiveness, along with prospective structural reforms such as the reform of the public administration, privatization and also the gradual strengthening of the financial sector will improve the sustainability of medium-term growth.
Moody's said that Cyprus' adjustment program which included economic and financial reforms paid off with respect to the country's fiscal performance as the reduction of the government's payroll. "Strong fiscal discipline and budget execution has persisted since then, supporting the outperformance of fiscal targets," Moody's said.
It added that Cyprus will not need additional budget cuts to generate a primary budget surplus of 2.5 percent of economic output next year without impacting growth.
Moody's revised its 2015 growth forecast to 1.2 percent from an earlier 0.5 percent and said the economic expansion will accelerate to 1.4 percent in 2016. The Ministry of Finance forecast a growth of 1.5 percent this year and a similar expansion in 2016.