Moody’s has further upgraded Cyprus’ senior unsecured medium-term note (MTN) programme ratings to (P)Ba1 from (P)Ba2 and has affirmed the commercial paper rating at Not Prime (NP) and the other short-term rating at (P)NP.

In addition, Moody’s has changed Cyprus’ outlook to stable from positive.

The key drivers for Moody’s upgrade in Cyprus’ ratings to Ba1 have been, first, the reduction in Cyprus’ exposure to event risks, because of a decrease in banking sector risks and, second, the resilience of the economy to the pandemic shock and robust medium-term GDP growth prospects being supported by sizeable European funds.

According to the announcement, the stable outlook reflects Moody’s view that credit strengths and challenges are balanced at the Ba1 rating level and that national support measures and sizeable EU funding limit the impact of the pandemic on the supply side of the economy and contingent liabilities from the crisis will probably remain contained.

Moreover, Moody’s expects debt affordability metrics to be favourable mitigating the impact of the higher debt burden compared to the pre-pandemic level on Moody’s assessment of fiscal strength.

Finally, Moody’s has raised Cyprus’ local- and foreign-currency country ceilings to A1 from A2 keeping the 6-notch gap to the sovereign rating and reflecting de minimis exit risk from the euro area.

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