Fitch Revises Cyprus Outlook to Positive and Affirms at A-  | This Means Great News for Local Businesses and Foreign Investors

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Fitch Ratings has revised Cyprus’ sovereign outlook to Positive and affirmed the country’s rating at A-, according to its latest announcement dated 21 November 2025, keeping Cyprus firmly within the investment-grade category. While the rating level remains unchanged, the signal from Fitch is clear: Cyprus is demonstrating consistent economic strength, disciplined fiscal policy, and resilience, even in a period marked by global uncertainty and regional instability.

For businesses operating in Cyprus, and for international investors considering the jurisdiction, this development reinforces Cyprus’ position as a stable, credible, and increasingly attractive investment-grade EU jurisdiction for structuring and long-term planning.  Cyprus remains firmly in the A-rated investment-grade category, now with a Positive outlook, a combination that is uncommon among small EU economies.

How this Differs from Last Year

Fitch last adjusted Cyprus’ sovereign position in November 2024, when it affirmed the rating at BBB- and revised the outlook to Positive.

At that time, the key message was one of recovery and momentum.

This year, the message is different. Cyprus now remains affirmed at A-, which represents a three-notch improvement from the BBB- rating held in November 2024. The 2025 outlook revision confirms not just improvement, but sustained strength. In other words, Cyprus is no longer being recognised for bouncing back, but for delivering stability and performance over time.

Why Fitch Upgraded the Outlook in 2025

According to the 21 November 2025 release, the Positive outlook reflects

• continued strong fiscal surpluses, outperforming most EU peers
• public debt declining faster than expected, reaching well below pre-pandemic levels
• resilient economic growth, supported by diversified activity
• strengthened banking-sector fundamentals, including improved asset quality and liquidity
• reduced contingent liabilities, especially from state-linked entities
• stable governance and policy execution

Fitch also notes that Cyprus has maintained comfortable liquidity buffers, while avoiding the fiscal slippage seen in other European economies.
Put simply, Cyprus has been managing its finances responsibly and consistently, and the data now confirms that this is not a short-term trend.

References from Fitch:

The rating action includes several quantitative elements that underline Fitch’s decision:

Rapid public debt reduction

• Cyprus is cutting public debt very quickly. Fitch forecasts:
  general government debt-to-GDP at 55.4% at end-2025, down from 63% in 2024, and
• 5% in 2027, which would mean an almost 70 percentage-point decline from the 2020 peak.

This is one of the fastest debt reductions among all Fitch-rated sovereigns. Even though gradual repayment of European Stability Mechanism (ESM) debt will nudge interest costs up slightly, the projected debt ratio, heading towards roughly 40% of GDP in the medium term, means overall financing needs will remain low and very manageable.

Large and sustained budget surpluses

Fitch projects average fiscal surpluses of 3.2% of GDP in 2025 – 2027, with primary surpluses at 4.5%, compared with an ‘A’-rated peer median that actually runs a deficit of about 3% of GDP.  The outperformance comes from:

• strong revenue (supported by a tight labour market and diversified growth), and
• restrained expenditure, even as the government plans more investment spending to address infrastructure gaps.

Cyprus is also pushing a tax reform that aims to ease the burden on individuals while offsetting this with higher corporate taxes, a politically sensitive move that Fitch interprets as consistent with a disciplined fiscal stance.

Strong fiscal record and policy credibility

Fitch explicitly notes that Cyprus has built a “strong record of fiscal prudence” backed by broad political and societal consensus around sound fiscal policies. Even with rising spending pressures, this hasn’t yet led to fiscal slippage. The authorities also plan to use the favourable environment to tackle long-standing imbalances, including intra-governmental debt, to further increase fiscal resilience.

Growth, Labour Market and Inflation

On the real-economy side, Fitch’s forecasts are also supportive.

• GDP growth is projected at 3.4% in 2025, easing slightly to 3.1% in 2026–2027, far above the euro area’s 1% baseline.
• Cyprus has already converged back to the EU average in GDP per capita (purchasing power terms).

Growth is broad-based and largely driven by ICT and other services, with contributions also coming from manufacturing and construction. Public investment linked to EU Recovery and Resilience Funds, together with large private projects, should keep investment momentum going.

The labour market is extremely strong:

• unemployment is back to pre-2009 levels;
• labour-force participation is around 80%, among the highest in Europe;
• wage pressures exist but have remained contained, and Fitch expects them to stabilise.

This combination: strong growth, high employment, and low inflation, underlines both the sovereign profile and the environment in which businesses operate.

Banking sector: very strong capital, falling NPLs

On the financial side, Fitch is clearly positive:

• the CET1 ratio of the banking system was 26.3% in June 2025, the highest in the EU;
• the NPL ratio continues to fall, down to 5.6% in June, from 6.2% at end-2024;
• consolidation in the sector should support further NPL sales.

Private sector indebtedness is declining as a share of GDP and is now close to the eurozone average when adjusted for special-purpose entities.

Why the Positive Outlook Matters

A sovereign outlook does not change day-to-day business conditions overnight. However, it influences key practical factors such as country-risk perception, long-term borrowing costs, investor confidence, local banking system strength, corporate financing conditions, and sovereign credibility during global volatility

A Positive outlook at A- level places Cyprus firmly within the strong investment-grade category, which carries weight when international companies select jurisdictions.

Impact on Cyprus-Based Businesses

 1. More Supportive Banking and Financing Conditions

Fitch highlights continued improvements in the banking system, including healthier balance sheets, more stable funding sources, non-performing loans are significantly reduced, and stronger capital ratios.

For Cyprus businesses, this translates into:

• better access to financing
• more competitive lending over time
• improved confidence when planning expansion
• smoother handling of cross-border transactions

While interest rates are driven by broader ECB policy, the risk premium attached to Cyprus continues to fall, which is particularly significant for companies with financing needs or growth plans.

2. Long-Term Stability for Strategic Planning

Businesses value predictability. The 2025 Fitch release emphasises institutional stability, measured fiscal management and resilience in the face of external shocks.
For companies operating in Cyprus, whether regional headquarters, shipping management, fintech, or investment platforms, this provides:

• reassurance for capital investment decisions
• a stronger climate for hiring and relocation
• confidence for multi-year project execution

In simple terms, the environment is moving in the right direction, steadily, not temporarily.

3. Continued Support for Sector Diversification

Fitch notes that Cyprus’ growth now comes from a broader economic base, rather than reliance on tourism alone.  Sectors showing sustained strength include:

• shipping and maritime services
• technology and IP-based activities
• fund and corporate administration
• energy and infrastructure
• professional services linked to relocation and substance

For local companies, this reinforces that the economic transition underway is real and recognised internationally.

What This Means for Foreign Investors

Stronger Jurisdictional Credibility

Investors looking to establish:

• holding or financing structures
• operational headquarters
• fund platforms
• IP and technology activities
• or family office arrangements

consider more than tax efficiency. They look at sovereign stability, legal predictability, and banking strength.  Cyprus, at A- with a Positive outlook, now stands alongside some of the most stable mid-sized EU economies, a meaningful shift from how it was viewed a decade ago.

Confidence for Long-Term Asset Deployment

The 2025 announcement signals that Cyprus is positioned for continued stability, not short-term fluctuation.  This matters for investors involved in energy transition and LNG-related projects, shipping fleet expansion and management, large-scale real estate and hospitality, private equity investments and succession and wealth planning within the EU.

A Positive outlook reduces perceived risk, which supports capital allocation and long-range commitments.

Reinforcing Cyprus as an EU Gateway

The Fitch revision strengthens Cyprus’ positioning as a bridge jurisdiction, particularly for:

• Middle Eastern and GCC investors
• Lebanese and wider MENA networks
• Israeli technology companies
• Central-Asian and Eastern-European groups
• international shipping operators

Cyprus’ value proposition today is increasingly a combination of:

• EU regulatory access
• common-law-based legal system
• competitive tax framework
• and now, sovereign-level stability

Fitch’s decision to affirm Cyprus at A- and revise the outlook to Positive sends a clear signal: Cyprus has moved into a phase of mature, sustained economic stability. For businesses operating in the country and for foreign investors assessing their next steps, the message is one of confidence, credibility, and long-term opportunity.

As Cyprus continues strengthening its economic foundations, companies and investors may wish to reassess:

• expansion or relocation plans
• group structuring for EU alignment
• investment and financing strategies
• succession and family office planning

For those evaluating what this development means in practical terms, AGPLAW remains available to provide tailored guidance across corporate, regulatory, tax, relocation, and private client matters.  If current trends continue, Fitch’s Positive outlook indicates that Cyprus is now positioned for a potential upgrade within the A- category over the medium term.

Click for Fitch’s RATING ACTION COMMENTARY.

Click for Cyprus Rating Report.

The information provided by AGPLAW | A.G. Paphitis & Co. LLC is for general informational purposes only and should not be construed as professional or formal legal advice. While every effort has been made to ensure the accuracy and reliability of the information contained herein, no representation or warranty is given. In no event will the author or any related parties be liable for any loss arising from reliance on this article.