Finance Ministry welcomes review results, reaffirms commitment to economic stability

The Finance Ministry on Wednesday released a statement welcoming the outcomes of the European Commission’s recent in-depth review, highlighting that they “demonstrate the government’s sound economic policies and efforts to address the macroeconomic imbalances facing the Cypriot economy”.

The European Commission’s report, released earlier this week, noted that Cyprus’ economy is on a healthy trajectory, expecting both GDP to grow and inflation to decrease.

However, it added that interconnections with economies both within and outside the EU pose significant geopolitical and trade tension risks, according to an overview of macroeconomic imbalances.

Moreover, the report explained that the moderation in GDP growth in 2023, which stood at 2.4 per cent, down from 5.1 per cent in 2022, was primarily attributed to weaker external demand for financial and business services, influenced by Russia’s invasion of Ukraine.

In addition, according to the commission’s interim winter forecasts, economic growth is expected to rebound again in 2024 and 2025, reaching approximately 3 per cent.

“The government remains focused on implementing policies that ensure further correction of imbalances and enhance the competitiveness of the Cypriot economy, with particular emphasis on the green and digital transitions,” the Finance Ministry said.

At the same, the ministry said that the in-depth review highlights that the Cyprus Recovery and Resilience Plan includes a series of significant reforms aimed at further reducing the macroeconomic vulnerabilities of the Cypriot economy and expanding its productive base, ensuring macroeconomic stability and the sustainability of public finances.

Among other things, the review noted that macroeconomic imbalances have been identified in the areas of public, private, and external debt.

Additionally, the net international investment position remains negative. However, it has improved and is approaching sustainable levels, with the current account deficit in 2023 expected to widen mainly due to a significant increase in energy prices.

Nevertheless, the stabilisation of energy prices and the recovery of external demand are expected to contribute to the improvement of the current account balance.

Both public and private debt have significantly decreased and are expected to continue on a downward trajectory in the coming years.

Furthermore, the review noted that the stock of non-performing loans (NPLs) in the banking sector continued to decline, while the possibility of new non-performing loans is viewed as remote.

In the future, the country’s vulnerabilities are expected to continue to diminish, supported by economic growth.

What is more, the report delved into Cyprus’ significant integration with both EU and non-EU economies, rendering it vulnerable to secondary effects stemming from economic developments in these regions.

The report concluded that Cyprus’ high exposure, both directly and indirectly, to partners outside the EU, subjects it to risks from geopolitical and trade tensions.