- failed mission : Iran defiant as UN nuclear talks fail
- austerity : French Socialists dig in heels on EU austerity
- gangster violence : Sweden's ‘Chicago’ grapples with deadly wave of shootings
- Cyprus : Cyprus EU presidency enlists world's fastest yacht
- brussels : Christofias begins contacts in Brussels
- death : Two western Journalists killed in Syria
- bank of cyprus : BoC takes €1 billion hit on Greek debt
- Apostolos Andreas : Our View: Petty disputes have no place in restoration of...
- bills : Bill to sideline the executive on gas going to a vote
- benefits : Mountain dwellers plan to protest cut in fuel allowance
‘Economy solid despite ratings agencies’ views’
Related content
THE Cypriot economy is based on solid foundations and has excellent prospects, the finance ministry said yesterday, in response to yet another downgrade of the economy – this time by Fitch, a notch shy of ‘junk.’
“Despite the adversity and negative external effects, the Cypriot economy is based on solid foundations and displays excellent prospects for the future,” the ministry said.
Government Spokesman Stefanos Stefanou said the decision by Fitch to downgrade Cyprus did not accurately reflect the situation. The Cyprus economy was in much better shape than many other economies in Europe.
Fitch downgraded Cyprus to BBB- with a negative outlook from BBB, mainly reflecting the “Cypriot banks' large capital need in light of the Greek debt restructuring expected this quarter.”
Although recognising that the island’s banks have already impaired their Greek bond (GGB) exposure by 50 per cent of nominal value, Fitch said “further pressure on banks' capital is expected if the final GGB haircut is higher.”
“Fitch believes it is highly uncertain whether the necessary funds will be found in the private sector or whether government assistance for certain institutions will instead be required to meet such capital requirements. This would increase the government debt to GDP ratio and might require external assistance.”
The government yesterday reiterated its conviction that banks would be able to secure the necessary funds themselves and would not need any help from the government.
Commenting on the raft of austerity measures passed in December in a bid to bring the deficit down to 2.5 per cent, the agency said it does not consider this target as realistic in 2012, forecasting instead at least 3.0 per cent.
But the “the underlying fiscal stance is encouraging as is the fact that the measures were passed by a clear majority in parliament,” Fitch said.
The agency said the negative outlook primarily reflects the risk that the eurozone crisis could intensify further.
It warned that further negative rating action would be triggered by failure to secure sufficient and timely external financial support if needed, or a major further deterioration in the banking sector outlook.
“Successful implementation of the 2012 and 2013 budgets, and the attainment of
private sector recapitalisation funds by the banks and their eventual return to
normal profitability and funding would help to stabilise the Outlook,” Fitch said.
Around two weeks ago, Standard and Poor’s slashed Cyprus’s sovereign ratings two notches to BB+, throwing its debt into junk territory on concerns at a broadening debt crisis in the eurozone.
The agency, which took ratings action against 16 eurozone nations, said its rating action was driven by an assessment that policy initiatives taken by European leaders in recent weeks could be insufficient to fully address systemic stress in the monetary bloc.
