NICOSIA, Cyprus (AP) — Rating agency Standard & Poor's gave Cyprus a pat on the back with a one notch upgrade to its credit grade, to B+, citing its commitment to the terms of its bailout program and better-than-expected economic growth.

The agency also said the country's outlook is stable, with good economic progress offset by lingering challenges to its banking system, which is still burdened with a huge amount of bad loans.

It hailed Cyprus' strong budgetary performance and projected a shallower recession this year. It expects an economic contraction of around 3 percent, 0.8 percent less than a previous forecast.

The agency said Friday that it expected heightened overseas investment interest, but warned that more EU sanctions against Russia could hurt tourism.