The rating agency S and P Global Ratings upgraded on Friday evening Cyprus’ long-term and short-term credit ratings in local and foreign currency from ‘A-/A-2’ to ‘A/A-1’, assigning a positive outlook to the long-term rating.
According to an agency statement, the Cypriot economy is expected to continue growing, resulting in strong fiscal revenues that will enable further public sector deleveraging over the coming years.
As noted, the significant increase in exports of services, particularly in the sectors of information technology and intellectual property rights, has strengthened the country’s export base, and strong inflows of foreign direct investment have mitigated the accumulation of private-sector external debt despite high current account deficits, while at the same time, fiscal surpluses have facilitated a sharp reduction in the public sector’s external debt.
It is added that public debt continues to fall both as a percentage of GDP and in absolute terms, supported by strong economic growth, robust tax revenues and expenditure control, with S and P forecasting budget surpluses averaging slightly below 3% of GDP until 2029, reducing net public debt to a level slightly above 30 per cent of GDP over the same period.
With regard to economic growth, it is noted that it is projected to average just under 3% until 2029, supported by resilient domestic demand, which is benefiting from a strong labour market, rising real incomes and significant public and private investment, including the utilisation of funds from the ‘Next Generation EU’ programme.
It is further noted that the Cypriot economy has remained resilient despite the regional conflicts in Russia-Ukraine and the Middle East, with oil prices forecast to rise in 2026 and 2027, which are expected to remain manageable for Cyprus, despite its heavy reliance on oil imports for electricity generation.
In this regard, it is emphasised that strengthening energy security remains a top priority for the Cypriot government, particularly given the current geopolitical climate.
As natural gas extraction remains a long-term ambition, the completion of the liquefied natural gas (LNG) terminal at Vasiliko is regarded as a crucial medium-term solution for mitigating energy risks, as once it becomes operational, the terminal could facilitate the transition away from diesel-fired power stations and significantly reduce energy costs – which are among the highest in the EU – while also helping to address the low share of renewable energy sources on the island, it is noted in this regard, adding that the terminal’s timetable remains uncertain due to frequent delays in construction, thereby jeopardising its planned commissioning towards the end of 2027.
Reference is also made to the ‘Great Sea Interconnector’ electricity interconnector, which aims to connect Cyprus’s electricity grid with those of Greece and Israel and remains on hold due to disputes with Turkey, despite the fact that EU funding has been secured for the majority of the project.
As regards inflation, the agency expects it to average 3.8% this year, given that Cyprus remains particularly vulnerable to fluctuations in oil prices, despite the extension of reduced VAT rates on fuel until 2027.
According to S and P in the banking sector the average non-performing loan ratio continued to fall, reaching 1.6 % in December 2025, below the European average, while the volume of domestic credits increased for the first time in 2025 by 2.5% following years of decline, and a further increase is expected.