Fitch: Cyprus won’t need all of bail-out money

Financial Mirror (Cyprus) - - FRONT PAGE -

Fitch Rat­ings be­lieves that with public sec­tor debt reach­ing 110% of GDP this year and later eas­ing off to about 90% by 2022, Cyprus won’t need to cash in on the full EUR 10 bln bailout agreed to in 2013.

“The gen­eral gov­ern­ment debt to GDP ra­tio is ex­pected to peak at just over 110% in 2015 and 2016 and will ease to around 90.7% by 2022. The strong bud­get per­for­mance im­plies the buf­fers in the pro­gramme have grown close to EUR 3 bln (17% of GDP). The un­der­ly­ing trend for public fi­nances has been pos­i­tive,” the rat­ing agency said, adding that the fis­cal deficit in 2014 was 0.2% of GDP (8.8% of GDP in­clud­ing the cap­i­tal in­jec­tions to the co-op­er­a­tive sec­tor) com­pared with Fitch’s fore­cast of 3.3% in Oc­to­ber.

“The over-per­for­mance re­flects a com­bi­na­tion of higher tax rev­enues and lower than ex­pected ex­pen­di­ture across most items. Fitch ex­pects the fis­cal deficits to av­er­age 0.8% from 2015 to 2018”.

How­ever it said that the risks to EU-IMF ad­just­ment pro­gramme im­ple­men­ta­tion re­main el­e­vated and that there is a sig­nif­i­cant risk that pri­vati­sa­tion plans will not be fully im­ple­mented, lead­ing to fur­ther de­lays to pro­gramme re­views. Fitch also noted that non-per­form­ing loans (NPLs) in the bank­ing sec­tor reached an “ex­cep­tion­ally high” 50%.

The re­moval of the re­main­ing cap­i­tal con­trols in April has led to the Coun­try Ceil­ing be­ing raised by three notches to ‘BB’. The credit rat­ing agency said that it has af­firmed Cyprus’s long-term for­eign and lo­cal cur­rency Is­suer De­fault Rat­ings (IDRs) at ‘B’ with a pos­i­tive out­look.

The Coun­try Ceil­ing has been raised to ‘BB-’ from ‘B’.

Fitch warned that Cyprus is among the most vul­ner­a­ble eu­ro­zone sov­er­eigns to a dis­or­derly Greek exit, as a coun­try still in the midst of a post-cri­sis ad­just­ment. Di­rect link­ages be­tween the two economies have been re­duced in re­cent years and are not large, how­ever, the im­pact on de­pos­i­tor and in­vestor con­fi­dence is harder to gauge.

“The pass­ing of the in­sol­vency law through par­lia­ment on 18 April should trig­ger the ac­ti­va­tion of the fore­clo­sure law and pave the way for fur­ther of­fi­cial fund­ing. The law should strengthen the fore­clo­sure frame­work and ad­dress the high bank­ing NPL prob­lem,” the rat­ing agency said.

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