Greek Cyprus sees rating cut over weakened economy

NEW YORK - Reuters

Greek Cypriot President Christofias arrives for a meeting with the president of the European Council Van Rompuy, ahead of the EU Summit in Brussels. EPA photo

Fitch Ratings downgraded Greek Cyprus by two notches on Nov. 21 and pushed it further into junk territory, assigning a BB-minus credit rating because of its weaker macroeconomic outlook.

The credit outlook remains negative, Fitch said in a statement.

“The downgrade of Cyprus’s sovereign ratings reflects the materially weaker macroeconomic outlook, a fiscal budget that has significantly underperformed expectations and the continued high level of uncertainty over the costs associated with bank recapitalization,” Fitch said.

Greek Cyprus is trying to negotiate with the European Commission, European Central Bank and the International Monetary Fund on a bailout package, with sticking points over how much is needed to recapitalize its banks, privatizations and pension cuts.

Greek Cypriot banks were battered by their exposure to the debt-crippled Greek economy. The delay in negotiating a deal, with resistance to reforms, Fitch said, only serves to increase the risk to Greek Cyprus’s medium-term fiscal and economic health.

“The delay in negotiating official support has contributed to the deteriorating economic conditions and raised uncertainties about public sector reform and the correction of macroeconomic imbalances,” Fitch said of the European Union member state.

Standard & Poor’s has Cyprus on watch for a downgrade and holds the rating two notches below Fitch at B. Moody’s Investors Service has Cyprus also on review for a downgrade with a rating of B3, which is three notches below Fitch.

In its analysis, Fitch highlights a deterioration in Cyprus’s fiscal deficits.