The credit rating agency Scope Ratings has upgraded the long-term sovereign credit rating of the Republic of Cyprus to ‘A’ from ‘A-’, citing a significant reduction in public debt, sustainable fiscal surpluses, and improved resilience of the banking sector. The outlook was revised from positive to stable, while short-term ratings were confirmed at S-1.
Debt and banking sector improvements
According to the agency, strong fiscal performance and economic growth have driven a rapid decline in public debt, which is estimated to have fallen to 55.4% of GDP in 2025, down from 113.6% in 2020. Debt is expected to continue declining, falling below 40% of GDP by 2030.
The banking sector has also strengthened, with continued reductions in non-performing loans and improvements in capital adequacy and coverage ratios. The NPL ratio fell to 4.2% in October 2025, while the coverage ratio reached historic highs, enhancing banks’ ability to finance the economy and reducing fiscal risks.
Positive fiscal outlook
Public finances remain positive, supported by strong corporate tax revenues—boosted by the relocation of technology firms—and a resilient labour market. After a fiscal surplus of 4.1% of GDP in 2024, a surplus of approximately 3.3% of GDP is estimated for 2025, despite spending related to the National Solidarity Fund, the July 2025 wildfires in Limassol, and household support measures.
A recent tax reform, increasing corporate tax while providing relief for middle incomes, creates some medium-term uncertainty. Nonetheless, fiscal surpluses are expected to continue, at roughly 3.1% of GDP in 2026 and 3.4% in 2027, remaining above 1% of GDP until 2030. Key fiscal risks include spending needs for climate adaptation, infrastructure, defence, and an ageing population, though the country’s strong fiscal position provides buffers.
Economic growth and employment
Cyprus’ economy maintains solid growth, with GDP rising 3.5% in 2025 following 3.9% in 2024, driven by private consumption, real wage growth, and investment. Growth is forecast at 3.1% in 2026, supported by private consumption and investments under the Recovery and Resilience Plan.
The unemployment rate fell to 4.3%, the lowest in nearly two decades, while inflation remained low at 0.8% in 2025, expected to reach 2% by 2027. Medium-term growth is projected at around 3%, supported by private investment and the tourism and technology sectors.
External risks
Despite strong fundamentals, Scope notes Cyprus’ rating is constrained by its small, open economy, external deficits, and structural banking vulnerabilities. The immediate impact of higher US tariffs and geopolitical uncertainty remains limited, given Cyprus’ exports are mainly services, with potential effects mainly from weaker European demand.
The stable outlook reflects the assessment that strong fiscal and economic performance offsets structural challenges.