Scope Ratings has maintained Cyprus' A credit rating with a stable outlook, citing prudent fiscal management, strong growth fundamentals and ongoing reform momentum, while warning of weaker growth, external imbalances and legacy bad loans outside the banking sector.
According to a statement issued by the agency on Friday, Cyprus' credit ratings are supported by:
- Prudent fiscal management.
- A favourable debt trajectory.
- Strong economic growth, among the highest in the eurozone.
- Momentum in structural reforms.
At the same time, Scope identified several credit challenges, including Cyprus' small, open and externally dependent economy, large external imbalances and high levels of legacy non-performing loans outside the banking sector, which continue to constrain credit growth.
The agency noted that these imbalances reflect substantial import needs, moderate savings levels and high profit repatriation by foreign-owned companies.
Growth expected to slow
Following strong economic growth of 3.8% in 2025, Cyprus' economic performance is expected to moderate as higher energy prices and elevated uncertainty weigh on purchasing power, confidence and tourism.
GDP expanded by 3.0% year-on-year in the first quarter of 2026, but Scope cautioned that the effects of the Middle East conflict are expected to slow growth during the remainder of the year.
According to the agency, this reflects:
- Cyprus' dependence on imported oil.
- Rising inflation, projected at 3.5% in 2026.
- Reduced tourism flows because of the country's proximity to the conflict.
Tourist arrivals were already down 1.7% in June 2026 compared with June 2025.
Scope forecasts GDP growth of:
- 2.6% in 2026
- 2.9% in 2027
Risks remain tilted to the downside, with the agency warning that any prolonged or escalating conflict would further weaken the country's economic outlook.
Despite the slowdown, growth is expected to remain well above the eurozone average in 2026, supported by:
- Continued implementation of the Recovery and Resilience Plan.
- A strong labour market.
- Higher growth in housing loans.
The agency expects the broader impact of the conflict to remain limited, provided it does not escalate further or adversely affect foreign direct investment inflows.
Capacity to support the economy
Scope also said the government remains well positioned to support the economy thanks to a strong fiscal surplus, moderate interest costs and a declining public debt burden.
The fiscal surplus is expected to remain significant, although it is projected to fall to 2.4% of GDP in 2026, from 3.5% in 2025, reflecting the impact of tax reform and slower economic growth.
The surplus is expected to decline gradually over the medium term, averaging 1.8% of GDP between 2026 and 2031, as revenue growth slows and spending pressures related to climate policy, infrastructure, defence and population ageing increase.
Cyprus' public debt continues on a firm downward path.
The debt-to-GDP ratio fell to 55.0% in 2025, from a peak of 113.6% in 2020, and is projected to decline further to around 50.5% in 2026.
In the absence of major shocks, Scope expects public debt to fall below 40% of GDP by 2029.
The current account deficit improved moderately to 6.4% of GDP in 2025, compared with 8.2% in 2024.
Stronger net exports of services, supported by the information and communications technology sector and a robust tourism performance, more than offset higher imports.
The direct impact of higher US tariffs has been limited because of Cyprus' relatively low exposure to the US economy.
However, Scope expects the current account deficit to widen again in 2026 because of:
- Higher energy import costs.
- Lower tourism revenues.
- Continued sensitivity to tensions in the Middle East.
Banking sector
In the banking sector, Scope said financial stability risks have eased considerably in recent years, supported by stronger capital buffers, improved loss-absorption capacity and a continued reduction in non-performing loans.
Bank capitalisation remains strong.
The Common Equity Tier 1 (CET1) ratio stood at approximately 26.1% in the first quarter of 2026, well above the EU average of 16.2%, according to the European Banking Authority.
Liquidity indicators also remain robust.
Asset quality has improved significantly.
The banking-sector non-performing loan ratio fell to 0.8% in March 2026, from 1.9% at the end of 2024, and below the EU average of 1.8%.
The NPL coverage ratio stood at 62.9%, one of the highest levels in the European Union, reflecting a conservative approach shaped by the risks associated with legacy assets.
However, Scope stressed that the stock of non-performing loans outside the banking sector remains high and continues to limit credit expansion.
It also warned that recent proposals could weaken the foreclosure framework.
Stable outlook
The agency said the stable outlook reflects its view that the risks facing Cyprus over the next 12 to 18 months are broadly balanced.
