NICOSIA Standard & Poor's raised its long-term sovereign debt rating on Cyprus to B- from CCC+ on Friday, saying immediate risks to debt repayments on the bailed-out Mediterranean nation appeared to have receded.
"The stable outlook reflects our view of the implementation risks that remain as the end of the three-year European Commission, International Monetary Fund, and European Central Bank program approaches, balanced against the upside potential we see coming from Cyprus' economy," S&P said in a statement.
It is the first ratings upgrade in three years for Cyprus, which was shut out of international financial markets for high implied yields on its traded debt in May 2011 and came to the brink of financial collapse earlier this year. Fitch rates Cyprus B-, and Moody's Investors' Service at Caa3.
The island, one of the smallest countries in the euro zone, signed up to a 10 billion euro bailout program with the IMF and EU in March.
Program money was not allocated to commercial banks, and the accord was conditional on Cyprus shutting down a major bank and recapitalizing a second lender with its clients' deposits.
Lenders have since reviewed Cyprus's progress twice, giving it positive reviews.
Standard and Poor's said the biggest challenge in Cyprus meeting lenders' conditions was a privatization program, expected to raise 1.4 billion euros by 2018.
An upside risk to the economy was anticipated revenue from offshore gas finds, but commercial incentives could be thwarted by the island's political division between Greek and Turkish Cypriots, Standard and Poor's said.
Cypriot president Nicos Anastasiades, a conservative who took power just before the bailout was concluded in March, said his government would be "consistent and disciplined" in managing the island's adjustment.
"This is the result of painful sacrifices by our people, but also the decisive policies this government has followed the past eight months," he said in a statement.
(Reporting By Lincoln Feast; additional reporting by Michele Kambas)