Scope Ratings has upgraded Cyprus’ long-term sovereign credit rating to A from A-, marking the country’s first upgrade of the year and revising the outlook to stable from positive.
The German rating agency said the decision reflects a significant strengthening of public finances, sustained economic growth momentum and the ongoing clean-up of the banking system of the Mediterranean island.
In a statement, Scope mentioned Cyprus’ exceptionally strong fiscal performance in recent years as the main driver of the upgrade. The country has recorded consecutive primary surpluses, supported by robust tax revenues and resilient economic activity. These developments have translated into a sharp reduction in public debt.
According to the agency, government debt fell to 55.4% of gross domestic product in 2025, a decline of more than 58 percentage points over five years. Scope described this as one of the fastest debt reductions internationally in the modern era. The downward trend is expected to continue, with the debt-to-GDP ratio projected to fall below 40% by 2030.
The agency forecasts that Cyprus will maintain fiscal surpluses averaging around 2.5% of GDP between 2026 and 2030. In addition, government cash reserves, estimated at about 10% of GDP, are seen as providing a substantial buffer against potential future economic shocks.
Cyprus’ banks in healthy trajectory
Scope also highlighted clear signs of improvement in the Cypriot banking sector. The ratio of non-performing loans declined to 4.2% in 2025 from 6.2% a year earlier, while the coverage ratio rose to a record 71%, among the highest levels in the European Union. Over the medium term, the agency expects the NPL ratio to converge towards the euro area average of around 2%.
Bank capitalization remains strong, with the Common Equity Tier 1 ratio exceeding the euro area average by roughly 10 percentage points. Scope said this significantly reduces potential contingent liabilities for the state.
On the macroeconomic front, Cyprus continues to post one of the strongest growth rates in the euro area. Gross domestic product expanded by 3.9% in 2024 and is estimated to have reached 3.5% in 2025. Scope forecasts growth of 3.1% in 2026. A strong labour market, rising employment, low unemployment of 4.3% and contained inflation are supporting private consumption and investment.
Despite the positive assessment, the agency cautioned that Cyprus’ ratings remain constrained by structural features of a small, open economy. These include a high dependence on tourism, foreign investment and energy imports, as well as sizeable external imbalances.
The upgrade by Scope Ratings opens this year’s cycle of sovereign credit assessments for Cyprus, which is set to continue over the coming weeks and months.
