Moody’s Investor Service has downgraded the credit rating of Cyprus, pushing the European island into a ‘junk status’ amid concerns of its banking sectors great exposure to heavily-indebted Greece.
“Overall, the fragile market confidence in Cyprus, which has already led to a loss of access to international debt markets, is likely to continue, with a high potential for further shocks to funding conditions for the sovereign and domestic banks,” Moody’s said in a statement released on Tuesday, AFP reported.
The country’s long-term bonds were downgraded from Baa3 to Ba1 and its short-term debt to ‘Not Prime” from “Prime-3,” with a negative outlook, leaving the option for additional downgrades open in the medium-term.
Junk status is a term given to bonds unlikely to meet their payment obligations, and have therefore high risks of defaulting.
Moreover, the ratings of Cyprus were also downgraded by Standard & Poor’s as well as Fitch Ratings in January, 2012.
Moody’s meanwhile expressed satisfaction in the decision made by Cyprus to seek a bailout loan from Russia to help restore confidence in its economy, but added that it may need to turn to the European Union for such a support.
Since early 2009, Europe has been grappling with a financial crisis which has forced majority of the continent’s governments to adopt harsh austerity measures and tough economic reforms in return for bailout funds.
Several European countries have despite the taken measures reported economic contractions, with Italy being the latest to confirm a recession due to the continents debt crisis.