Fitch: Cyprus Outperforms ‘A-’ Peers, Eyes Debt Reduction to 45% of GDP

International credit rating agency Fitch has affirmed the Republic of Cyprus’ long-term credit rating at ‘A-’ with a stable outlook. The report highlights the government’s strong fiscal discipline, robust budget surpluses, and faster-than-expected public debt reduction—factors that allow Cyprus to outperform many countries in the same rating group.

According to Fitch, Cyprus is maintaining an impressive primary budget surplus of 4.3% of GDP in 2024. The overall budget surplus has reached 5.6%—the highest level in nearly two decades—thanks to rising revenues and tightly controlled spending. These indicators reflect serious fiscal discipline and a proactive approach to managing global uncertainty.

Cyprus’ public debt has dropped significantly, from 73.6% of GDP in 2023 to 65.3% by the end of that year. If this trend continues, Fitch forecasts the debt could fall to 52.6% in 2026 and approach 45% by 2030—an impressive result even among developed economies.

In terms of economic growth, Cyprus is projected to maintain a steady 3% growth rate in both 2025 and 2026, slightly down from the 3.4% seen in 2024. Growth is largely driven by a strong services sector, particularly finance, tourism, and technology. The labor market also remains healthy, with employment rising by 2% and unemployment falling to 4.5%, near record lows.

However, the report also notes several structural risks—most notably, a persistently high current account deficit of around 7% of GDP, one of the highest in the European Union. Nevertheless, foreign direct investment (FDI) continues to offset this deficit, flowing into increasingly diversified sectors beyond traditional finance.

Cyprus’ banking sector is described as stable, with a Common Equity Tier 1 (CET1) capital ratio of 24.5%—the highest in the EU. Non-performing loans have dropped to 6%, signaling continued progress in cleaning up bank balance sheets.

Fitch pointed out that its internal rating model had actually placed Cyprus in the ‘A’ category, but external risks—such as global instability and regional tensions—led to a final rating of ‘A-’. Other barriers to an upgrade include relatively weaker governance compared to ‘A’-rated peers and the island’s continued political division.

The agency emphasized that further improvements in fiscal health and a reduction in the current account deficit could pave the way for an upgrade. Conversely, a deterioration in public finances or a major external shock could result in a downgrade.

The Cypriot Finance Ministry issued a statement welcoming the report, calling it a recognition of the government’s reform efforts, budget discipline, and long-term development strategy. The ministry stressed that maintaining policy stability is critical in a world still fraught with uncertainty—from the war in Ukraine to tensions in the Middle East.

“Fitch has recognized Cyprus’ solid economic progress in recent years, as well as the good outlook for the near future, despite the significant challenges facing the global economy,” the Ministry said.

The statement concluded with a renewed commitment to continue implementing sound economic plans, optimizing opportunities, and strengthening the country’s competitiveness—aiming for long-term growth and sustainable public finances.