Fitch Upgrades Cyprus to A on Falling Debt and Budget Surplus

what happened

Fitch Ratings has raised Cyprus's long-term issuer default ratings to A from A-, keeping the outlook stable, according to Dow Jones Newswires.

The agency points to a quickly shrinking public debt load, which it expects to fall from 52.4% of GDP in 2025 to 46.3% in 2026 and 36.6% by 2028. Fitch projects a 2026 general government surplus of 3.2% of GDP, the highest in the euro zone. It also forecasts GDP growth of 3% a year over 2026-2028, ahead of the euro area average, supported by strong domestic spending and services. Tourism has rebounded quickly after a slowdown when the Middle East conflict began.

Inflation is the main concern. Harmonised inflation reached 5.2% in September, up from 0.9% in February, and Fitch links this to heavy reliance on fossil fuel imports and high services prices. Inflation is seen averaging 4% this year and about 2.5% in 2027 and 2028. The current account deficit is expected to average 8.1% of GDP over 2026-2028. Fitch sees near-term risks in inflation and its effect on consumption, and external vulnerabilities as the key medium-term challenge.

why it matters

A move to A typically lowers the risk premium on government debt and eases borrowing costs, which matters for Cypriot bonds and for peripheral euro area debt more broadly. Inflation and the large current account deficit remain the factors investors will watch most closely.

tags

instruments