Cyprus' finance minister says credit rating downgrade from Fitch is 'inevitable'
NICOSIA, Cyprus (AP) - It is "inevitable" that Fitch ratings agency will cut Cyprus' credit grade following similar moves by both Moody's and Standard & Poor's, the finance minister said Tuesday.
Fitch put Cyprus on notice in January for a possible downgrade, but noted it did not expect the AA minus rating to be lowered by more than one notch.
Last month, Moody's cut its rating on Cypriot government bonds by two notches with a stable outlook amid concerns over public accounts and the financial system's exposure to debt-ridden Greece. S&P cut its grade by one notch with a negative outlook last November over similar concerns.
Charilaos Stavrakis said that rating agencies "usually follow one another" and that currently Fitch has Cyprus at a higher rating than the other two agencies.
"The aim is to stabilize the situation so that there are no further downgrades, to improve public finances, resolve the economy's structural problems and to reduce the cost of borrowing and reassure the agencies and foreign investors," Stavrakis said.
Cyprus' economy grew by 0.9 percent last year after a 1.7 contraction in 2009. The International Monetary Fund last month predicted growth of between 1.5 and 2 percent this year with favorable prospects for a continued upturn in 2012.
But a rising fiscal deficit caused in part by a high public sector wage bill has shaken confidence in those growth projections. Stavrakis has been trying to assure markets that the island won't go the way of neighboring Greece, which is receiving euro110 billion ($151 billion) in rescue loans to keep it from defaulting on its debts.
Cyprus, a euro member, incorporated a package of cost cuts and tax hikes in this year's euro8.02 billion ($11 billion) state budget to fulfill a promise to the European Union to cut in half a 6 percent deficit by 2012. The EU has a 3 percent deficit limit, though the rule has been broadly broken after countries' public debt was bloated by the financial crisis.
Among the cost cutting measures is a pledge to trim 3,000 jobs from a government work force of 53,000 in the country of 800,000.
The Finance ministry estimates the deficit for 2010 was 4.9 percent of GDP and projects a slight drop to around 4 percent this year.
Stavrakis said public debt — estimated at 60.6 percent for 2010 — is projected to rise marginally to 61.5 percent this year and stabilize at around 60 percent by 2013.
(Associated Presse)
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La situazione a Cipro.