S&P cuts Cyprus

Standard & Poor's said it lowered its long-term sovereign credit rating on the Republic of Cyprus to BBB+ from A- and affirmed the short-term sovereign credit rating at A-2.

The outlook remains negative.

Despite ongoing talks about substantial consolidation measures, the Cypriot government will struggle to meet its 2011 general government deficit target of less than 4% of GDP and its 2012 target of 2%, the agency said. This, in turn, will likely increase the government's debt burden.

The uncertain fiscal adjustment raises questions about the government's capacity to support a large banking system with substantial exposure to both Cyprus and Greece, the agency added.

The negative outlook reflects the likelihood of a downgrade if substantial expenditure cuts fail to materialize or if the Cypriot government is required to recapitalize the commercial banking system, S&P said.

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