Standard and Poor's has downgraded Cyprus' credit ratings further into junk status as the agency believes the country's debt burden will increase again if EU approves the government's request for bailout.
The long-term sovereign credit rating on Cyprus was cut to 'BB' from 'BB+' and was placed on CreditWatch with negative implications. At the same time, the short-term sovereign credit rating was affirmed at 'B'.
S&P's base-case scenario assumes Cyprus will negotiate a financial support package of EUR 11 billion, or just over 60 percent of GDP. As a result, the net general government debt burden will increase by nearly 12 percent of GDP on average in 2012 and 2013, peaking at over 105 percent of GDP in 2013
The government's issuance of EUR 600 million in T-Bills in 2012 may increase rollover risk on the government's debt stock, the agency noted.
At the same time, it observed that, Cyprus' short-term financing pressures are increasing as its negotiations with the European Union, ECB, and IMF are unlikely to conclude before September. Also, significant uncertainty remained over securing bilateral funds, it said.
S&P projects that Cyprus' real GDP growth will contract by 1.5 percent this year and to stagnate during 2013.
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