Despite action taken so far risks to Cyprus' sovereign creditworthiness continue, a report published on Wednesday by Moody's Investor Service says.
In an announcement on the credit rating's website it is noted that the report "says that Cyprus' Caa3 rating (positive outlook) reflects the ongoing credit risks relating to the sustainability of the country's public finances, as well as the resulting elevated risk of default in the medium-term".
The rating agency says "that the main challenge facing the Cypriot authorities is helping the Cypriot banks deal with their high percentage of non-performing loans (NPLs) (system-wide average of 45%), one third of which represent household loans".
The rating agency's report is an update to the markets and does not constitute a rating action. On the fiscal side, the primary deficit has narrowed from 3.2% of GDP in 2012 to 2.0% of GDP in 2013, which is below the target set under the Troika's Programme.
In addition, the government recently improved its debt-amortisation profile by repaying early a bond due to mature in 2017, thanks to the proceeds raised from international markets.
However, Moody's says that historically high indebtedness and decreasing incomes have stretched Cypriot households' creditworthiness over the last few years, and whilst cost-competitiveness has improved, it has not translated into stronger export performance.
As a result, Moody's considers it unlikely that there will be any meaningful economic recovery before 2016.
Source: CNA, Cyprus Property News