Standard Poor's said Tuesday, November 28, it had affirmed the local- and foreign-currency ratings on the Republic of Cyprus and that its outlook is stable.
In a statement received by AFP in Nicosia, SP said the Cypriot economy's external position is manageable, that there have been improvements in the government's fiscal position and that structural reforms have resumed.
It said the government deficit is forecast to narrow to 3.5 percent of GDP in 2000, reflecting better-than-average expected revenue growth and under spending in the defense and development budgets. That compares with budget projections as high as 4.5 percent.
It said improved prospects for accession to the European Union are expected to "sustain parliamentary support for structural reforms and fiscal consolidation, providing the government with sufficient flexibility to manage the short-term risks associated" with reforms.
However, it added that the government's self-imposed accession timetable provides little flexibility in the pace of adjusments, meaning that "timely parliamentary support ... will be central to maintaining macroeconomic stability and, in turn, moderating the risks associated with liberalization of the capital account."
SP said Cyprus' external positions "remains manageable, although liquidity ratios are significantly worse that in similarly rated countries. The short-term debt burden and the gross external financing gap are "substantial," mainly due to high nonresident deposits in the banking sector.
SP warned that "failure to adopt orthodox, indirect implementation of monetary policy following the removal of the domestic interest rate ceiling on January 1, 2001, or to maintain fiscal restraint could undermine macroeconomic stability, jeopardize the sustainability of the exchange rate peg in the context of further liberalization of the capital account and could place downward pressure on the rating."
Those affirmed included the AA- local currency senior unsecured debt rating, the A foreign currency senior unsecured debt rating and the A1+ local currency short-term debt rating.— (AFP)
© Agence France Presse 2000
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