Cyprus' creditworthiness has deteriorated significantly since the last downgrade on August 2, as domestic political constraints have prevented a timely agreement with the EU, IMF, and ECB (the "Troika") on a financial support package.
The downgrade reflects S&P's view that Cyprus' creditworthiness has deteriorated since the last downgrade on August 2, 2012, as the government has not yet negotiated a support package, while external and fiscal risks have risen. S&P believes that electoral considerations ahead of the presidential poll, scheduled for February of 2013, have contributed to policy inertia. This is in the face of a severe banking crisis, partly triggered by Cypriot banks' involvement in Greek debt restructuring in early 2012 (private sector involvement) but made worse by the deterioration in banks' domestic lending books, and the government's fiscal inaction.
S&P sees only limited progress by the government in agreeing to a critical loan programme with the Troika.
© Standard and Poor's
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