Standard & Poor’s cut Cyprus’s long-term debt rating late on Thursday for the third time in five months, citing a rising risk of default as the government’s short-term financing is “increasingly vulnerable.”
The grade fell to CCC+ from B, S&P said in a statement, following declines in August and October. The outlook remains negative and S&P said it sees “at least a one-in-three chance” of a cut in 2013. The short-term rating, last reduced in January, slid to C from B.
Cyprus, the fifth euro-area nation to seek a financial rescue, faces a more serious fiscal situation than Greece, Luxembourg Prime Minister Jean-Claude Juncker, who heads the group of euro-area finance ministers, said last week. The Cypriot government is negotiating with the euro area and the International Monetary Fund for aid.
“With the government’s financing options increasingly limited – coupled with what we view as the hesitant attitude of Cyprus’ eurozone partners toward sharing the cost of a severe banking crisis – we view the risk of a sovereign debt default as considerable and rising,” S&P said.
Thursday’s cut leaves Cyprus’s long-term rating seven steps below investment grade, the lowest of the euro area nations and lagging behind Pakistan and Belarus.
The government may have to restructure its debt if external and fiscal financing pressures escalate and “official assistance is not forthcoming,” S&P said.
Another rating cut may come if S&P believes Cyprus isn’t able to fulfill the conditions of a program agreed with the so- called troika that oversees euro-area bailouts. On the other hand, ratings “could stabilize at their current levels” if a program is quickly agreed and growth prospects, government debt, and external funding stabilize, S&P said.
Finance Minister Vassos Shiarly said on Monday that the government can meet its payment obligations while seeking an international aid agreement that may come next month.
Euro-area finance ministers are due to meet next on January 21.