Moody’s ratings agency changed Cyprus’ Caa3 government bond rating from negative to positive, following to the island’s economic performances in 2013, which were way better than expected, and the authorities’ accomplishment of meeting actions under the Troika funding program.

Cyprus received a Caa3 rating given the still existing risk of Cyprus defaulting on its debt.

The Cypriot economy decreased by 5.4% in constant prices in 2013 (6.9% in current prices), exceeding all estimates.

This, together with the implementation of fiscal-consolidation measures, is expected to have reduced the general government deficit to 5.4% of GDP in 2013 from 6.4% in 2012. Further the primary deficit has dropped to an estimated 2.1% of GDP in 2013, from 3.3% in 2012.

It appears to Moody’s that the measures implemented in 2013 should have permanent positive fiscal effects, including revenue measures, measures to reduce the wage bill through freezing the Cost of Living Adjustment as well as reducing the size of the public sector workforce.

Moody’s highlights that; the government continues to meet the program’s conditions, especially the strengthening of the financial sector’s supervisory and regulatory framework.

The government also recently approved the privatization of utilities companies, and has continued to relax the capital control measures.

Further, Moody’s has raised the local and foreign-currency bond rating of Cyprus to Caa1 from Caa2, reflecting first of all a lower possibility of exit from the euro area and secondly the relaxation of capital control measures as well as the possibility for depositors to use their deposits for debt repayment.

The local and foreign currency deposit ceilings remain unchanged at Caa2 as the withdrawal of deposits is still in place.