Cyprus expected to see debt-to-GDP ratio drop significantly by year-end

The European Commission this week projected a significant 30 per cent decrease in Cyprus’ public debt, as a percentage of its Gross Domestic Product (GDP), by the end of 2024.

This projection was voiced within the framework of the European Semester, as the Commission greenlit the draft of Cyprus’ state budget for 2024, aligning it with the Council’s recommendation from July 14, 2023.

In a statement, the European Commission expressed its contentment with Cyprus’ budget draft, asserting that it corresponds to the Council’s recommendation. It also forecasted that Cyprus would achieve its mid-term target by 2024.

Notably, Cyprus had already met its mid-term target for a neutral structural position starting in 2023, with an estimated structural surplus of 1.2 per cent in 2023 and 1.9 per cent in 2024.

Moreover, the European Commission suggested maintaining a fiscally sound position while anticipating the cessation of energy support measures by 2024.

The commission’s recommendations in July 2023 advocated for gradually phasing out support measures by 2023 and 2024, suggesting that if energy price increases necessitate further actions, Cyprus should ensure targeted assistance for vulnerable households and businesses.

Additionally, the recommendation highlighted the need to maintain public investments, estimated to reach 2.8 per cent of GDP.

Regarding the fiscal balance, the Commission estimated a slightly lower surplus of 2.1 per cent of GDP in 2024 (compared to the budget estimate of 2.8 per cent).

This adjustment factored in the impact of the rent subsidy plan, expanded support measures, and other housing policies disclosed after the budget draft submission.

In terms of the public debt ratio to GDP, the commission projected it to be around 71.5 per cent by the end of 2024, exceeding the Maastricht Treaty’s reference point of 60 per cent but reflecting nearly a 30-percentage-point decrease from the ratio recorded in 2021.

This downward trend in the debt-to-GDP ratio is attributed to the nominal GDP increase and maturing debt repayments.

The commission’s assessment provides a positive outlook for Cyprus’ fiscal health, indicating progress in reducing public debt and maintaining fiscal stability as the country progresses through its economic targets.