Moody’s to review Cyprus rating for possible downgrade

INTERNATIONAL ratings agency Moody’s has placed Cyprus’ Aa3 local and foreign currency government bond ratings on review for possible downgrade.

In its statement, Moody’s said that the decision to initiate this review was prompted by:

• concerns that the recent deterioration in the Cypriot government’s fiscal metrics is largely structural;

• competitiveness issues; and

• the banking sector’s exposures to macroeconomic stress in Greece.

Moody’s said that the rating could be adjusted downwards by more than one notch, although the rating is likely to remain in the investment-grade A category.

Moody’s senior analyst Sarah Carlson said that: “The severe impact of the financial crisis on Cyprus caused a deterioration in government finances that may prove very difficult to reverse.” Adding that “While the Cypriot government has put forward a 2011 budget that appears to comply with its commitments under the EU’s Excessive Deficit Procedure, its plans do not address the structural issues that may undermine the government’s financial strength over the medium to long term.”

Further reading: Moody’s places Cyprus’s Aa3 rating on review for possible downgrade