Moody's Upgrades Cyprus Ratings

by Lorys Charalambous, Tax-News.com, Cyprus

02 August 2007

The Cypriot Ministry of Finance has announced that the international ratings agency Moody’s, in its recent evaluation of the Cyprus economy, has revised upwards the credit rating of Cyprus as regards foreign currency.

In its latest assessment, Moody's upgraded the Cypriot credit rating to “A1 Positive” from “A2 Positive.” The credit rating of Cyprus as regards domestic currency was also upgraded from “A2 Positive” to “A1 Positive”.

The finance ministry said that the upgrading of Cyprus’s credit rating will improve the terms of financing.

Moody’s evaluation of Cyprus took into consideration the adoption of the euro on January 1, 2008, the viable growth rate, the constraint of inflation and the fact that Cyprus is in the process of fiscal reform which is successfully improving public finances.

The Agency considers that Cyprus’s accession to the eurozone is a positive step, since it will bring important advantages and tangible benefits to the economy, to establishments and to citizens, such as the creation of more favourable conditions for the convergence of the interest rates to the rates of the euro, the creation of more favourable conditions for financing for both the public and the private sector, the elimination of the currency cost and the risk of transactions in euro, the attraction of foreign investments, more transparency in prices and access to foreign markets.

The Council of European Finance Ministers (Ecofin) formally accepted Cyprus's application to join the eurozone last month. Acting on a proposal by the Commission, the Council fixed at 0.585274 the rate at which the Cypriot pound will be converted into euro. Cyprus now has just 5 months to to complete and finalise its practical preparations to ensure that the changeover to the euro takes place smoothly.

In an assessment of Cyprus's preparations for the changeover, the European Commission concluded last month that while Cyprus has made good progress, it must speed up its preparations.

Cyprus adopted an updated version of its National Changeover Plan in June. Euro coins are being produced by the Mint of Finland following a public tender. Cyprus estimates at 400 million the number of coins needed for the domestic market. Commercial banks will start receiving euro cash in the second half of October 2007, a process known as 'frontloading'. Afterwards, retailers will be provided with euro cash by commercial banks, so that they can give change in euro as from 1 January. The general public will be able to buy euro coin starter-kits from early December.

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