Morningstar DBRS ups Cyprus trend to ‘positive’

DBRS Ratings GmbH (Morningstar DBRS) has changed the trend on both the Republic of Cyprus’ long-term and short-term foreign and local currency issuer ratings to ‘positive’ from ‘stable’ on the view that Cyprus will maintain its strong fiscal position and continue reducing its public debt burden. Morningstar DBRS also confirmed the long-term credit ratings at “A” and the short-term ratings at R-1 (low). The rating agency said favourable economic growth prospects and sizable structural fiscal surpluses help reduce the general government debt-to-GDP ratio from an expected 49.9% this year to below 40% by 2029. It also expects robust private consumption, ample investment, and still high tourism and non-tourism service exports will support growth in the coming years. After 3.8% growth in 2025, the Central Bank of Cyprus expects real GDP to expand by around 3.0% each year over the forecast horizon. Morningstar DBRS said the war in Iran is affecting the Cypriot economy less than initially estimated, though some reduction in tourism and rising imported inflation will weigh on output this year. On fiscal policy, the Ministry of Finance projects the fiscal surplus to narrow this year to 2.3% of GDP from 3.4% last year, although the Ministry expects surpluses to widen again due to strong revenue generation from solid nominal GDP growth and an increase in social security contributions. The MoF forecasts that the country’s fiscal surplus will recover to around 3% of GDP in the coming years and reach 3.6% by 2029. The rating agency added that Cyprus’ ratings are supported by sound institutional quality, membership of the EU and euro area, a stable domestic political environment, and strong fiscal and economic policies. Conversely, the credit ratings are constrained by the economy’s still comparatively low level of labour productivity and by the small size of its services-driven economy, which renders the country vulnerable to external shocks. Stable political environment Morningstar DBRS said that the political environment in Cyprus is stable. Parliamentary elections took place in May 2026 and produced a more fragmented legislature. In Cyprus’ presidential system, the recent elections did not determine the government and is thus unlikely to lead to major policy changes regarding fiscal policy and the reforms embedded in Cyprus’s recovery plan. President Nikos Christodoulides remains in office and the head of government until the next presidential elections scheduled for 2028. In terms of institutional quality, the country’s ranking in the Worldwide Governance Indicators (e.g. control of corruption, rule of law) has deteriorated over the past years and is now below the EU average. At the same time, the country’s EU membership remains an important anchor for institutional quality. With respect to the reunification talks supported by the United Nations, Morningstar DBRS currently assumes that the chances of a significant breakthrough remain limited. The post Morningstar DBRS ups Cyprus trend to ‘positive’ appeared first on Financial Mirror .