Moody’s ratings agency has upgraded Cyprus’ sovereign rating to Ba1 from Ba2 with stable outlook on a decrease in banking sector risks and the economy’s resilience to the pandemic shock.

The primary driver for the upgrade of the ratings is the material improvement in the underlying credit strength of the domestic banking system, which also reduces the risks of a systemic banking crisis and therefore lowers the risk of a crystallization of contingent liabilities in the banking system on the government’s balance sheet.

The second driver for the upgrade of Cyprus ratings is the relative resilience of the economy to...