Cyprus received a positive credit outlook from Morningstar DBRS, which revised its outlook from stable while affirming the country’s long-term sovereign rating at “A.” The agency cited strong growth, fiscal surpluses and a declining public debt burden.

Rating Agency Points To Stronger Fiscal Foundations

Morningstar DBRS expects Cyprus to maintain a strong fiscal position and continue reducing public debt. Favorable growth and sizeable structural surpluses are expected to push debt from 49.9% of GDP in 2026 to below 40% by 2029.

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Cyprus’ short-term rating was also affirmed at R-1 (low), with the outlook revised to positive.

Government Hails Confirmation Of Economic Resilience

Finance Minister Makis Keravnos said the decision confirmed the government’s prudent economic policies and Cyprus’ resilience amid international instability.

“It is particularly important that the agency confirms the prudent and proactive economic policy pursued by the government, which continuously strengthens the economic position of the Republic of Cyprus and leads to the steady reduction of public debt,” he said.

Keravnos said fiscal buffers provide room to respond to external shocks, including geopolitical risks, while the government will continue supporting growth and employment. President Nikos Christodoulides also welcomed the decision. In a post on X, he linked the positive outlook to strong growth, record employment and falling public debt.

“We continue with the same responsibility, consistency and determination for an economy that is even stronger, more competitive and resilient, which broadens opportunities and strengthens prospects for all citizens,” he wrote. “Cyprus is changing.”

Growth, Surpluses And Debt Reduction Remain Central

Cyprus’ growth has been supported by private consumption, investment and strong services exports, Morningstar DBRS said. GDP grew 3.8% in 2025, while the Central Bank of Cyprus expects real growth of around 3% annually over the forecast period. The agency said the impact of the Middle East war has been less severe than initially feared, although lower tourist arrivals and higher imported inflation could weigh on activity in 2026.

Cyprus recorded a fiscal surplus of 3.4% of GDP in 2025, down from 4.1% in 2024 but still the highest in the EU. Revenue reached €15.9 billion, or 43.6% of GDP, compared with €9.7 billion, or 41.3% of GDP, in 2019. Morningstar DBRS attributed the revenue increase to a broader corporate tax base, efforts to attract international companies and stronger employment and wages.

Buffers Provide Room For Maneuver

Cyprus’ social insurance system holds reserves of about €12 billion, equal to 33% of GDP, and generates an annual surplus of roughly €1 billion, or 2.7% of GDP. The central government’s cash buffer stood at 6.9% of GDP in July.

Public debt has fallen from 96.5% of GDP in 2021 to 55% in 2025. Morningstar DBRS expects it to drop below 50% by the end of 2026 and below 40% by 2029.

Risks Remain, But The Trajectory Is Positive

Morningstar DBRS identified risks including an economic shock and potential contingent liabilities linked to Cyprus’ domestic banking sector, whose assets exceed 200% of GDP.

Cyprus’ political environment remains stable despite a more fragmented parliament following May’s elections. Its governance indicators, including control of corruption and rule of law, have weakened in recent years and remain below the EU average, although EU membership provides an institutional anchor.

Prospects for major progress in UN-led reunification talks also remain limited, the agency said.

What Could Drive The Next Move

Cyprus could receive a further upgrade if public debt falls as expected and the economy shows greater resilience and improved labor productivity.

The outlook could return to stable if external vulnerabilities increase or debt reduction falls short of projections. A significant deterioration in the debt path or a structural growth slowdown could eventually lead to a downgrade.