Minister welcomes IMF debt ratio revision — Cyprus to reach key figure a year earlier

Finance Minister Makis Keravnos welcomed the release of the International Monetary Fund’s (IMF) Fiscal Monitor, which expects that Cyprus’ public debt ratio will decline to the Maastricht Treaty limit (60 per cent) one year earlier than previously thought, describing it as a very positive development.

The IMF’s re-evaluation of Cyprus’ public debt-to-GDP ratio forecast was due to higher expectations in terms of the economy’s growth rate, which will consequently boost nominal GDP.

Specifically, this year the debt-to-GDP ratio will decline to 70.7 per cent (compared to 71.9 per cent in last year’s Fiscal Monitor) and will significantly decrease to 65.1 per cent in 2025 (compared to 67.8 per cent last year).

In 2026, Cyprus’ debt ratio will reach the 60 per cent threshold, declining to 56 per cent, 52.8 per cent, and 50 per cent in the years 2027, 2028, and 2029, respectively.

In last year’s Fiscal Monitor, the debt-to-GDP ratio was estimated to fall below the 60 per cent threshold in 2027.

The IMF’s evaluation, the Finance Minister explained, “reaffirms the excellent progress of our economy, and indeed states that Cyprus will reduce its public debt even earlier”.

“This is a very positive development in a period with all these geopolitical developments, which the Ministry of Finance, of course, closely monitors,” Keravnos said.

“We all hope that there will be no further complications,” he added.

Moreover, according to the report, the IMF said that it has high estimates for both the primary surplus (excluding debt service expenditures) and the fiscal balance.

Specifically, the General Government’s primary surplus, which was 2.9 per cent of GDP in 2023, is projected to be 2.5 per cent this year and 2.4 per cent in 2025.

In 2026, the primary surplus is estimated to be 2.3 per cent of GDP and will decrease to 1.4 per cent, 1.0 per cent, and 0.8 per cent of GDP in the years 2027, 2028, and 2029, respectively.

Regarding the primary balance, the IMF estimates it will be significantly surplus during the forecast horizon.

The IMF reported that from 4.3 per cent of GDP in 2023, the primary surplus is expected to stand at 3.9 per cent this year and 3.8 per cent in 2025.

In 2026, the primary balance will decline to 3.7 per cent and will be 2.9 per cent, 2.6 per cent, and 2.3 per cent in the years 2027, 2028, and 2029, respectively.

According to the IMF, public revenues will remain steadily above 40 per cent of GDP. From 42.9 per cent of GDP in 2023, public revenues are estimated to be 43.4 per cent in 2024 and 2025, which is the highest level in the entire forecast horizon.

In 2026, public revenues will be 43.3 per cent and are expected to remain at 42.7 per cent of GDP in the years 2027, 2028, and 2029, respectively.

Regarding the ratio of public expenditures to GDP, the Fiscal Monitor estimates it will remain around 40 per cent of GDP.

From 39.9 per cent of GDP in 2023, it is projected to increase to 40.9 per cent of GDP this year and rise to 41 per cent in 2025 and 2026.

In the years 2027, 2028, and 2029, public expenditures are expected to reach 41.3 per cent, 41.7 per cent, and 41.8 per cent, respectively.

“These estimates are better than previous ones and quite close to those of the Finance Ministry, acknowledging the resilience and prospects of the Cypriot economy,” the ministry said in a statement following the publication of the IMF report.

The ministry also noted that “positive developments in the economy, despite the challenges and uncertainties, demonstrate the resilience of the Cypriot economy to external shocks, based on healthy financial indicators and the good performance of the economy, especially in the tourism and other service sectors”.

“However, uncertainty about the macroeconomic outlook remains high due to the difficult external environment stemming from the ongoing Russia-Ukraine war and the conflict in Israel and the Gaza Strip, which still rages and risks escalating into a broader conflict in the Middle East,” the ministry concluded.