S&P fears the country will default on its debts

The credit rating of Cyprus according to S&P was lowered by two levels - to CCC+, which means the country lost its investment status. Agency experts refer to the risks of Cyprus defaulting on debt obligations. The country is already being foreshadowed about the Greek scenario; to save the banking sector and cover the budget deficit for next year, €17 billion may be required - the three creditors are preparing to provide this in January.

The rating agency Standard & Poor`s on Friday lowered the credit rating of Cyprus by two levels at once - to CCC+ (“default is possible”), the forecast is negative. In fact, the country’s government has not had access to borrowing on the open market for more than a year, but the level of public debt in relation to GDP next year could reach 92% (a double increase over the past five years). Eurogroup Chairman Jean-Claude Juncker previously estimated the possible volume of external assistance to Cyprus at €17 billion, which is almost equivalent to the country’s GDP (€18 billion). “The problems of this country should not be underestimated, because they are more serious than those of Greece,” said Mr. Juncker.

The Cypriot budget for next year will be deficit - expenses (€9.5 billion) will exceed revenues (€7.6 billion) by almost €2 billion, another €6 billion will be required to refinance the country’s debt obligations, the Cypriot Ministry of Finance estimated. The remaining funds are intended to save the banking system. Let us remember that Cyprus officially requested financial assistance back in June - immediately after the two largest banks, having failed to meet European capital adequacy requirements, turned to the government for state support. Cypriot banks, which had a large number of Greek government bonds on their balance sheets, lost assets as a result of the spring deal with private creditors of the Greek government debt (the write-off amounted to 53.3% of the nominal value).

Formally, the agreement on the allocation of assistance is planned to be agreed upon by January 21 next year. Meanwhile, according to the head of the Eurogroup, “writing off part of the debt is not currently one of the priority instruments; in Greece it was carried out as an exception and under special conditions.” However, it was the successful completion of the second debt restructuring operation that became the basis for revising Greece's rating upward - to B-, according to S&P. Following this measure, the ECB resumed lending to banks secured by Greek government securities, suspended in July last year.

Tatiana Edovina

Cyprus dropped below Greece