IN A MOVE that increases the probability that Cyprus may face a downgrade in the near-term, Fitch ratings agency placed six countries in the Eurozone (including Cyprus) on risk watch negative last Friday.
Fitch expects to complete the review by the end of January – and if that review concludes that a downgrade is warranted, it is likely be limited to one or two notches. Cyprus is currently at BBB, two notches above junk status.
Fitch also placed on rating watch negative Belgium (currently AA+), Spain (AA-), Slovenia (AA-), Italy (A+) and Ireland (BBB+).
In its statement Fitch said that the negative outlook was “prompted by the heightened risk of contingent liabilities to the French state arising from the worsening economic and financial situation across the Eurozone” and concluded that “a ‘comprehensive solution’ to the Eurozone crisis is technically and politically beyond reach”.
Government response
In response to the move by Fitch, the Finance Minister said that the government has taken all necessary and decisive measures for the fiscal consolidation of the economy and at the moment, there is no reason for concern.
These decisive measures are expected to help reduce sharply the budget deficit as a percentage of the GDP, overshooting the original objectives.
The statement pointed out that “Although the budget as submitted by the Government is the most tight budget over the past 35 years, the House adopted amendments to further cut costs, reducing the budget deficit for 2012 even more” and that financing needs for 2012 will be limited.