THE GOVERNMENT yesterday lambasted Standard and Poor’s decision to downgrade Cyprus’ credit rating by two notches, to a BB+ rating.
Following Friday’s downgrade, Cyprus’ sovereign rating is now at junk level.
Along with Cyprus, 15 other Eurozone nations were included in the downgrade, including France and Austria who lost their AAA rating.
Finance Minister Kikis Kazamias accused the rating agency of having a hidden agenda and indicated that “behind the S&P downgrade lies a monetary war between the euro and the US dollar, and Cyprus is essentially paying for this dispute.”
“This decision can justifiably be considered arbitrary and unsubstantiated,” Kazamias told reporters yesterday morning.
The agency cited the significant exposure of Cypriot financial institutions to Greek national debt and the political, financial and monetary crisis within the eurozone as the reasons behind the downgrade.
S&P had downgraded Cyprus’ rating to BBB in October after the 50 per cent haircut on the Greek debt, which sent shockwaves among Marfin Popular Bank and the Bank of Cyprus, which have sizeable holdings in Greek debt.
Cyprus had been placed on a rating watch negative by all rating agencies in December, with Fitch’s rating for Cyprus also set at BBB.
After Cyprus’ downgrade to BB+, more rating agencies are expected to follow suit.
The minister revealed that he had sent the rating agency a detailed outline of all the new developments in the Cyprus economy and the effects of the recently introduced austerity measures earlier on Friday.
Kazamias complained that S&P had completely ignored the fact that Cyprus was one of the few countries that had fully covered its financing requirements for 2012.
“The agency also chose to ignore the positive momentum that was being built regarding the prospects of the Cyprus economy following the publication of results demonstrating the existence of significant gas reserves in the Exclusive Economic Zone (EEZ) of Cyprus,” said Kazamias.
The €2.5 billion Russian loan secured in December along with the recent natural gas reports in Cyprus’ EEZ were seen as pivotal in turning around Cyprus’ slump in the credit rating rankings the past year.
“The agency chose to ignore our efforts to control our finances, despite citing our budget deficit as a negative factor in past downgrades,” said Kazamias, who complained that S&P had even rejected Cyprus’ right to an appeal for re-evaluation.
The downgrade comes only two days after Cyprus was praised by European Commissioner Olli Rehn for adopting sufficient measures for consolidating its credit stability.
Kazamias questioned the timing of the downgrade and called all parties and social partners to rally round the government in order to consolidate financial stability and adopt economic growth measures.
President Demetris Christofias said that he felt the recent downgrade was “completely unjust”, while opposition parties branded the downgrade as a “wake-up call” for the government to take action and promote growth enhancing measures.
The 2012 budget, which was approved after much deliberation in December, included several austerity packages and cuts in state spending which Kazamias had said would be enough to avert a future downgrade.
“The downgrade clearly shows that the austerity measures, the natural gas findings and the positive evaluation from the European Commission have not persuaded anyone about our financial credibility,” said DIKO vice chairman, Nicolas Papadopoulos.
