S P upgrades Cyprus to one notch below investment grade

Standard and Poor's upgraded their ratings of Cyprus's economy from "BB" to "BB+" with a stable outlook, just one notch below investment grade, according to a document made available in Nicosia on Saturday.

An investment grade rating will have a big impact on the eastern Mediterranean island's borrowing costs as it is faced with a high debt-to-GDP ratio, following its 10-billion-euro (10.8 billion U.S. dollars) bailout by the Eurogroup and the International Monetary Fund in 2013. Standard and Poor's said its assessment of Cyprus was based on a strong expansion of its economy since its bailout.

"The upgrade reflects our views of Cyprus's stronger than expected economic growth and fiscal progress," the rating agency said.

It projected an expansion of the economy by about 2.7 percent this year and an annual growth of just under 2.5 percent between 2018 and 2020.

The European Commission has said that this kind of expansion amounted to overheating of the economy and urged the Cypriot government to slow down its economy.

But Finance Minister Harris Georgiades told state radio on Saturday that he does not share this view, adding that he will not take any measures that would check economic growth.

Despite the strong show of the economy, unemployment still stands at around 12 percent, down from over 17 percent at the start of the crisis.

Georgiades hailed the upgrading by S P as reflecting "a robust economic and fiscal outlook."

Standard and Poor's said that with the projected rate of growth of the economy and the government's budgetary condition, which outperformed its own target by 0.4 percentage points this year, will lead to a discernible drop of the sovereign debt.

"We estimate that net general government debt will drop to below 90 percent of GDP by the end of 2018 versus slightly under 100 percent of GDP at end-2015" it said.

Standard and Poor's said that an expected weaker rate of reforms ahead of the presidential elections and the still high ratio of non-performing loans after the onset of the crisis is offset by Cyprus's fiscal and economic growth. It said these factors explain its "stable outlook" view of the Cypriot economy.