Moody’s Urges Cyprus To Tighten The Fiscal Belt

by Lorys Charalambous, Tax-News.com, Cyprus

05 August 2005

International ratings agency Moody's has praised Cyprus's high standard of living, low inflation and low unemployment environment, although it has warned the Cypriot government that it will need to tighten the fiscal reins in order to improve its credit quality.

Assigning an 'A2' ('Medium') foreign currency rating, Moody's recognised that significant steps have been made by the government to reduce its fiscal debt. However, it went on to point out that rising cost pressures in the area of health care and pensions, in addition to wage demands from trade unions in the public sector have yet to be adequately dealt with.

Moody's also expressed concern over the declining competitiveness of the country's tourist product, its sensitivity to regional geopolitical events, the supervision of banking, its institutions, mismanagement in certain government bodies and the uncertainty shrouding the Cyprus settlement.

Moody's warned that Cyprus's ratings may be revised downwards if there is an increase in the public debt level and/or a deterioration in relations with Turkish community in the North of the island.

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