The election of a pro-bailout candidate in Cypriot elections last Sunday boosted chances of a financial deal with international lenders, Moody’s said on Thursday.
But it did not alter its own assessment of a high probability of default.
“Domestic banks’ recapitalization needs remain uncertain and we anticipate Cyprus’ debt burden will rise dramatically, reaching an unsustainable level,” Moody’s said in a statement.
“There is a 50 percent chance that the sheer size of Cyprus’ anticipated debt load will eventually compel authorities to pursue every avenue for debt reduction, including private-sector losses on Cypriot debt,” the ratings agency said.
Conservative leader Nicos Anastasiades swept to victory in a presidential runoff on Feb. 24, vowing to unblock a stalemate in discussions with international lenders on aid the island desperately needs.
Anastasiades was to be sworn in for a five year term later on Thursday, replacing Demetris Christofias, a communist leader criticized by some for failing to negotiate effectively with lenders.
Moody’s said it did not expect an improved political landscape to lower the probability of default for Cyprus, which it rates Caa3, with a negative outlook.
Bank recapitalization needs were expected to push the general government debt up to 150 percent of GDP, it said. [Reuters]