Standard & Poor΄s Ratings Services has cut Cyprus΄s rating two notches into highly speculative territory, citing escalating financial pressure and uncertainty as bailout negotiations remain unresolved ahead of a presidential election.
S&P now rates Cyprus΄s long-term sovereign credit rating at triple-C-plus, seven steps into junk territory. The outlook is negative according to Wall Street Journal
The firm said the risk of a sovereign default is “considerable and rising” amid continuing negotiations between Cyprus and its euro-zone partners and the International Monetary Fund on a bailout package. Cyprus applied for a bailout in June 2012, and the S&P noted intensifying pressures ahead of the presidential elections scheduled for Feb. 2013.
The government΄s short-term financing is “increasingly vulnerable,” the firm said.
S&P noted that a 2013 budget recently submitted to Parliament includes “far-reaching spending cuts totaling nearly 6% of GDP” and said the budget΄s “underlying revenue assumptions may be too optimistic” given risks of further deterioration in gross domestic product.
The ratings agency also said the question of financial support for the Cypriot banking system remains unanswered.
The negative outlook reflects the view that escalating external and fiscal financing pressures could result in a downgrade, for instance if official assistance isn΄t forthcoming or if the government isn΄t able to meet the conditions of a bailout.
The ratings could stabilize if growth prospects, government debt and external funding needs stabilize.
The IMF said Thursday that Cyprus΄s bailout talks aren΄t likely to be wrapped up before year΄s end as officials are still wrangling over how to reduce the country΄s debt to sustainable levels. Earlier in the week, Cypriot officials warned that a default may be only days away, if the country didn΄t get the financing it needed from state-owned institutions.
(source: WSJ, Capital)
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