It has been a crazy couple of years that all of us had to endure at both professional and personal levels. We had to learn to work and live life under a global pandemic, hyperinflation, as well as war in Europe. It’s not that things are astonishing now, but we see light at the end of the tunnel and things are looking quite optimistic. We are officially away from Covid and ahead of the curve on the inflation front. We will see how things will resolve eventually in Ukraine, but experts suggest that there might be a “solution” or an end game in that front in the next 6 months as well. In any case, our mission is to help guide the local audience with the best advice at this moment.
In this context, we are collecting some very positive information on the island that we would like to share with you for the short and midterm economic horizon. S&P is now rating Cyprus at BBB with a stable outlook. Moody’s credit rating is set at Ba1 with a positive outlook. Fitch last reported a BBB- with a stable outlook as well. Also, DBRS’s credit rating for Cyprus is BBB with a stable outlook. Finally, Capital Intelligence upgraded Cyprus’ Long and Short-Term Foreign Currency Rating to ‘BBB-’ and ‘A3’ from ‘BB+’ and ‘B’. These ratings are used by wealth and pension funds to measure Cyprus credit worthiness and they do have a big impact on the state borrowing costs.
Also, the action plan to attract tech talent, businesses and capabilities is working like a charm. The idea is to grow Cyprus into a very strong centre for IT start-ups and headquartering. Within this aspiring ecosystem, the newly arriving tech professionals will live, work, get paid, consume and actively contribute to the local market while developing worldwide horizons. Additionally, this technology ecosystem is linked with local institutions and is exchanging knowledge through networking. It is a longer term strategy that can be shaped to offer strong technological capabilities across sectors and is now gaining traction with thousands of applicants.
The government is also occupied on the following:
- Proactively Managing Governmental Debt Levels
- Slowly Declining Contingent Liabilities from the Banking Sector
- Managing Energy Prices from the Effect from the War in Ukraine
- Capitalising the European Recovery & Resilience Facility (RRF)
- Capitalising the Pandemic Emergency Purchase Programme (PEPP)
- Enhancing the resilience of Private Consumption & Investments
- Preparing a Surplus Budget Position of 1.1% of GDP by 2023-2024
- Refinancing Short Term debt on a Sustainable basis
- Approved the Greenest Budget ever of 8.4 billion
Overall, economic growth has exceeded projections in 2022 as GDP grew by 6.1 percentage points. Despite the Russian market cordon, tourism also posted strong growth with arrivals aggregating from the UK, Israel, Poland, Germany and Sweden. So far, the government planning and actions have demonstrated a solid resilience of the economy and improved fiscal fundamentals. In fact, both the budget deficit and government debt are returning to a quite sustainable path. The government is also expected to receive €255 million from the RRF in 2022, conditional on the implementation of structural reforms pending on public, energy, legal and digital sectors. Conversely, debt projections in households and corporates remain at 39.1% and 50.0% of total non-performing loans (NPL). But, overall, the fundamentals look healthy and the larger economic horizon is promising.