Cyprus grade of BB+ blasted as arbitrary

Exposure to Greece blamed for decision

Nicosia (Reuters) Cyprus reacted angrily on Saturday to Standard and Poor’s downgrade of its credit rating into junk territory, accusing the ratings agency of high-handed behaviour that ignored the island’s moves to reduce its deficit and improve its finances.

“This decision can justifiably be considered arbitrary and unsubstantiated,” Finance Minister Kikis Kazamias said. S&P cut Cyprus, the third-smallest country in the Eurozone, to BB+.

Standard and Poor’s said the downgrade reflected its opinion that Cypriot f inancial institutions have a signif icant exposure to indebted Greece and the wider Eurozone crisis.

Kazamias openly questioned whether the agency “served other expediencies” and said the move ignored the fact that the European Commission had recently given plaudits to Cyprus for tackling its deficit levels.

“This agency also ignored, totally arbitrarily, the fact that the Republic of Cyprus is one of a few countries that has fully covered its financing requirements for 2012,” Kazamias said.

The island has adopted several austerity packages to cut high government deficits. A budget passed by parliament in December projected a deficit of no more than 2.5 per cent of GDP this year compared with about 6.0 per cent in 2011.

Fiscal slippage

But due to fiscal slippage and exposure of its banking sector to Greece, which t r i ggered earlier rati ng cuts, Cyprus has been shut out of international capital markets since last May, with yields on its debt trading at above 10 per cent.

It recently clinched a €2.5 billion (Dh9.18 billion) loan from ally Russia, which authorities say will cover its financing needs this year.