**NICOSIA** – Cyprus has received a significant boost to its economic standing, with credit rating agency Scope Ratings announcing an upgrade of the island nation's long-term sovereign credit rating. This positive assessment, reflecting robust economic performance and prudent fiscal management through to late 2025 and beyond, coincides with the country's commitment to contribute to an EU-backed loan facility for Ukraine.
The upgrade, lauded by Finance Minister Makis Keravnos as "another significant upgrade," is underpinned by a confluence of favourable economic indicators. Foremost among these is the dramatic reduction in public debt, projected to plummet from a high of 113.6% of GDP in 2020 to a mere 55.4% by 2025, with further decline anticipated to fall below 40% by 2030. This fiscal consolidation has been complemented by sustained budget surpluses, estimated at approximately 3.3% of GDP for 2025 and expected to remain robust throughout the decade. Furthermore, the Cypriot banking sector has demonstrated considerable resilience, with non-performing loans significantly curtailed, falling to 4.2% by October 2025, and unemployment rates reaching a healthy 4.3%. Inflation, meanwhile, has been commendably contained, hovering at a mere 0.8%.
These favourable economic conditions have not only strengthened Cyprus's internal financial architecture but have also positioned it to play a more prominent role within the European Union's broader economic initiatives. As one of the 24 member states participating in a substantial EU loan package designed to support Ukraine, Cyprus is slated to contribute to the annual interest servicing of this facility, with its share for 2026 estimated at €4.4 million. This commitment, however, is structured to minimise immediate fiscal strain, with the initial contribution of €2.2 million for 2026 to be drawn from existing budgetary headroom within the 2021-2027 EU budget framework, thus avoiding the necessity for new national funding in that year. Future contributions are anticipated to be integrated into subsequent EU budgetary cycles, and the potential for a reduced Cypriot contribution exists should the United Kingdom rejoin the bloc.
The financing for the substantial EU loan to Ukraine is to be raised through market mechanisms by the European Union itself. A crucial element of this financial arrangement is the eventual repayment by Ukraine, which is contingent upon its ability to secure reparations from Russia. EU Council Conclusions from December 2025 affirm that "The loan will be repaid by Ukraine only after receiving reparations." Should Ukraine be unsuccessful in this regard, the financial burden for both principal and interest would fall upon the participating EU member states. As a potential safeguard, frozen Russian assets, estimated at approximately €210 billion, have been earmarked as a backstop for this loan facility.
The credit rating upgrade serves as a powerful testament to Cyprus's adept economic stewardship and enhances its financial resilience on the international stage. The strengthening of its banking sector not only reduces potential risks for taxpayers but also bolsters its capacity for lending and investment. With its public finances demonstrating considerable strength and stability, Cyprus continues to solidify its position as one of the more fiscally sound nations within the European Union. While the commitment to the Ukraine loan represents a modest financial undertaking for Cyprus, its impact is largely mitigated by existing EU budgetary provisions. Nevertheless, the overarching long-term financial implications for member states, should reparations from Russia not materialise, warrant careful consideration within the evolving geopolitical and economic landscape.