Scope Ratings GmbH (Scope) monitors and reviews its credit ratings on an ongoing basis and at least annually, or every six months in the cases of sovereigns, sub-sovereigns and supranational organisations that may act as a lender of last resort.

Scope performs monitoring reviews to determine whether material changes and/or changes in macro-economic or financial-market conditions could have an impact on the credit ratings. Scope considers all available and relevant information when undertaking the monitoring review.

Monitoring reviews are conducted by performing a peer comparison, benchmarking against the rating-change drivers, and/or reviewing the credit rating’s performance over time, as deemed appropriate by the Lead Analyst or Analytical Team Head, in addition to an assessment of all aspects of the relevant methodology/ies, including key rating assumptions and model(s). Scope announces the result of each monitoring review on its website and/or on its subscription platform ScopeOne.

Scope completed the monitoring review for the Republic of Cyprus (long-term local- and foreign-currency issuer and senior unsecured debt ratings: A-/Stable Outlook; short-term local- and foreign-currency issuer ratings: S-1/Stable Outlook) on 22 April 2025.

This monitoring note does not constitute a credit-rating action, nor does it indicate the likelihood that Scope will conduct a credit-rating action in the short term. Information about the latest credit-rating action connected with this monitoring note along with the associated ratings history can be found on scoperatings.com.

Key rating factors

For the updated rating report accompanying this review, please see here.

Cyprus’ credit ratings are supported by: i) solid economic fundamentals and a strong growth potential with one of the highest growth rates in the euro area; ii) a solid fiscal consolidation trajectory and commitment to structural reform; and iii) sustained improvements in the financial sector.

Cyprus’ credit ratings are challenged by: i) the small, open and externally dependent economy that is vulnerable to shocks due to the high dependence on foreign workers, oil imports and external demand; ii) an external position characterised by large imbalances reflecting high import needs, moderate savings and high repatriation of profits by foreign-owned companies; and iii) lingering albeit improving vulnerabilities in the banking sector, as reflected in still elevated non-performing exposures.

Real GDP growth is projected at 2.8% in 2025, down from 3.4% in 2024. Domestic demand is expected to be driven by a tight labour market, lower inflation, infrastructure investment, and further progress in the disbursement of the Recovery and Resilience Facility, following the third instalment (EUR 76.9m) paid in April 2025. The moderation of commodity prices could also support domestic demand given Cyprus’ high dependence on oil imports. However, Cyprus’ small and open economy is vulnerable to escalating global trade tensions, which could reduce its services exports – particularly shipping, which accounts for around 7% of GDP. Although trade relations with the United States are modest and mainly focused on commercial services, Cyprus is highly exposed to the European Union, accounting for about 20% of exports and 60% of imports.

The fiscal surplus is expected to reach 3.3% of GDP in 2025, following 4.5% in 2024, and is projected to average 2.1% between 2026 and 2029. Last year’s strong fiscal performance was driven by a record-high primary surplus of 5.8% of GDP as a result of strong revenue growth. The government is committed to maintain a primary surplus and pursue prudent budgetary policies to contain net expenditure growth. A tax reform, raising the corporate income tax from 12.5% to 15%, is expected to be implemented by end-2025. Strong revenue growth, long average debt maturity and limited financing needs are expected to continue driving solid fiscal performance, with the net interest payments anchored at 3.0% of revenue on average by 2029. Large primary surpluses and high liquidity buffers (more than 8% of GDP as of December-2024) support the government’s ability to withstand external headwinds and address structural challenges such as investment in energy infrastructure.

Strong primary surpluses and robust growth prospects drive the projected decline in general government debt-to-GDP from 65.0% in 2024 to 58.8% in 2026 and 50.8% by 2027. This decline in public debt represents one of the strongest performances compared to rating peers. The debt trajectory is robust to a moderate economic slowdown and lower than projected fiscal surpluses. Cyprus is expected to repay the principal on ESM loans (EUR 6.3bn) as scheduled from 2025 to 2031.

The Stable Outlook for Cyprus represents Scope Ratings’ view that risks for the ratings are balanced.

Upside scenarios for the long-term ratings are (individually or collectively):

1. Significantly stronger macroeconomic stability due to, for example, economic diversification and lower external imbalances, enhancing resilience against external shocks;
    
2. Significantly stronger financial sector outlook due to, for example, a resolution of the financial crisis legacy including a reduction of still high levels of non-performing loans;
    
3. Further improvement in fiscal dynamics at a significantly faster rate than presently forecasted, driving an accelerated decline in general government debt.

Downside scenarios for the long-term ratings are (individually or collectively):

1. Weaker fiscal outlook due to, for example, a loosening of the fiscal stance challenging the expected decline in general government debt;
    
2. Weaker macroeconomic stability due to, for example, more pronounced external imbalances, undermining the shock absorption capacity;
    
3. Weaker financial sector outlook due to, for example, the resurgence of banking sector’s vulnerabilities.

The methodology applicable for the reviewed ratings and/or rating Outlooks (Sovereign Rating Methodology, 27 January 2025) is available on scoperatings.com/governance-and-policies/rating-governance/methodologies.
This monitoring note is issued by Scope Ratings GmbH, Lennéstraße 5, D-10785 Berlin, Tel +49 30 27891-0.
Lead analyst: Thomas Gillet, Director

© 2025 Scope SE & Co. KGaA and all its subsidiaries including Scope Ratings GmbH, Scope Ratings UK Limited, Scope Fund Analysis GmbH, Scope Innovation Lab GmbH and Scope ESG Analysis GmbH (collectively, Scope). All rights reserved. The information and data supporting Scope’s ratings, rating reports, rating opinions and related research and credit opinions originate from sources Scope considers to be reliable and accurate. Scope does not, however, independently verify the reliability and accuracy of the information and data. Scope’s ratings, rating reports, rating opinions, or related research and credit opinions are provided ‘as is’ without any representation or warranty of any kind. In no circumstance shall Scope or its directors, officers, employees and other representatives be liable to any party for any direct, indirect, incidental or other damages, expenses of any kind, or losses arising from any use of Scope’s ratings, rating reports, rating opinions, related research or credit opinions. Ratings and other related credit opinions issued by Scope are, and have to be viewed by any party as, opinions on relative credit risk and not a statement of fact or recommendation to purchase, hold or sell securities. Past performance does not necessarily predict future results. Any report issued by Scope is not a prospectus or similar document related to a debt security or issuing entity. Scope issues credit ratings and related research and opinions with the understanding and expectation that parties using them will assess independently the suitability of each security for investment or transaction purposes. Scope’s credit ratings address relative credit risk, they do not address other risks such as market, liquidity, legal, or volatility. The information and data included herein is protected by copyright and other laws. To reproduce, transmit, transfer, disseminate, translate, resell, or store for subsequent use for any such purpose the information and data contained herein, contact Scope Ratings GmbH at Lennéstraße 5, D-10785 Berlin. Public Ratings are generally accessible to the public. Subscription Ratings and Private Ratings are confidential and may not be shared with any unauthorised third party.