Cyprus' Cabinet resigned on Thursday in preparation for a reshuffle aimed at addressing an economic and energy crisis caused by a blast that knocked out its main power station and killed 13 people.

President Dimitris Christofias will go ahead with the reshuffle soon after consulting with the leadership of junior governing coalition party DIKO on Thursday, government spokesman Stefanos Stefanou said. The ministers will stay on until the reshuffle is completed.

Christofias has been under pressure for a Cabinet reshuffle after the ministers of defense and foreign affairs resigned over the July 11 explosion of seized Iranian munitions that were being stored at a naval base near the power station.

The blast deeply eroded the government's credibility among many Cypriots who see official negligence as the real culprit behind the disaster. Some have called on Christofias to resign, which he flatly ruled out.

Asked if he would consider stepping down, Christofias said: "No sir. The people elected me and I answer to the people."

Christofias still has to contend with the blast's economic toll. A Cabinet reshuffle will help remove at least some of the uncertainty surrounding his ability to press ahead with spending cuts and fiscal reforms.

On Wednesday, Moody's downgraded Cyprus' credit rating by two notches from A2 to Baa1 over concerns about the blast's economic fallout, the combative political climate and the banking system's exposure to bailed-out Greece.

The agency warned of another possible downgrade and reduced the country's growth forecasts for the island to 0 and 1 per cent in 2011 and 2012, respectively — a drop of around 1.5 per cent from EU growth estimates for both years.

EU experts estimate that the blast's overall cost to the island's €17.4 billion ($25.14 billion) economy will be over €2 billion ($2.89 billion) while damage to the Vasiliko power station alone — which generated more than half the island's power output and will take a year to become fully operational again — is estimated at €700-800 million ($1-1.15 billion).

Cyprus' top banker last week warned that the blast may force Cyprus to seek a bailout if deep spending cuts aren't made swiftly.

The government and opposition leaders agreed last week on a first package of cost-cutting measures to buoy the economy in the wake of the blast.

But there is still disagreement on how deep cost cuts should go, especially to the public payroll that takes up about a third of the island's €8-billion ($11.6-billion) budget.