IMF Staff Country Reports

The 2024 Article IV Consultation discusses that Cyprus recovered swiftly from the pandemic and has proven resilient to multiple adverse shocks. Growth moderated in 2023 with slowing consumption growth, lower services exports to Russia, and fading post-pandemic base effects. However, growth has remained above the euro area average, supported by a continued recovery in tourism, expanding financial services and information and communication technology activity, and strong investments. The labor markets are tight, with unemployment at a near two-decade low. Headline inflation dipped below 2 percent, but core inflation has been more persistent. Growth is expected to stabilize in 2024 and rise to 3 percent in the medium term. Driven by robust revenue growth, the primary surplus increased further in 2023, contributing to a large decline in public debt. The authorities’ planned neutral fiscal stance in 2024 is appropriate. Further, primary surpluses should be maintained until debt falls comfortably below 60 percent of gross domestic product. Further judicial and labor market reforms are necessary to streamline the business environment and reduce skill mismatches, both of which will support the ongoing diversification of Cyprus’ growth model.