{
  "title": "Cyprus: Staff Concluding Statement of the 2022 Article IV Mission",
  "publication": "IMF News, March 30, 2022",
  "sourceUrl": "https://www.imf.org/en/news/articles/2022/03/30/cyprus-staff-concluding-statement-of-the-2022-article-iv-mission",
  "canonical": "https://www.imf.org/en/news/articles/2022/03/30/cyprus-staff-concluding-statement-of-the-2022-article-iv-mission",
  "overlayPath": "/en/news/articles/2022/03/30/cyprus-staff-concluding-statement-of-the-2022-article-iv-mission/index.md",
  "summary": "IMF mission met virtually with Cypriot authorities from March 11–28, 2022.",
  "publishDate": "2022-03-30",
  "sections": [
    {
      "heading": "Mission summary",
      "content": "- IMF mission met virtually with Cypriot authorities from March 11–28, 2022.\n- Key near-term challenge: calibrate policy response to the economic fallout from the war in Ukraine.\n- Baseline: automatic stabilizers allowed to operate; 2022 budget provides sufficient fiscal support in the baseline.\n- If shock is larger than expected, any additional discretionary support should be temporary, targeted, and not hinder reallocation of labor to expanding sectors.\n- Medium-term objective: gradual fiscal adjustment to rebuild buffers, aiming to bring the budget close to balance by 2024.\n- Financial vulnerability reduction: more forceful implementation of existing deleveraging strategy, including:\n  - removing uncertainties in implementation of the foreclosure framework;\n  - improving the working environment for credit acquiring companies (CACs);\n  - using examinership and restructuring tools for viable businesses.\n- Structural reforms recommended: strengthen governance, improve judicial efficiency, address skills gaps and mismatches, and close infrastructure gaps to improve growth prospects."
    },
    {
      "heading": "Context and outlook",
      "content": "- Vulnerabilities:\n  - Cyprus remains highly vulnerable to the economic fallout from the war in Ukraine despite reduced exposures to Russia.\n  - Tourism has not fully recovered and is highly dependent on arrivals from Russia (about 20 percent of the total).\n  - Pandemic largely phased out policy support; limited impact on private balance sheets overall, but some debtors weakened.\n  - Direct financial sector impact from sanctions likely limited given diminished exposures and winding down of RCB Bank.\n- Growth projections:\n  - Growth projected to slow from 5½ percent in 2021 to around 2 percent in 2022.\n  - Recovery expected in 2023 if situation normalizes; potential growth gradually increasing from 2½ percent to about 3 percent by 2027.\n- Inflation and risks:\n  - Inflation expected to rise in 2022 and then start declining but will remain elevated in 2023 and beyond given prolonged pass-through.\n  - Key risks tilted to the downside: escalation/longer duration of the war and sanctions; uncontrolled Covid outbreaks; abrupt monetary tightening in advanced economies; higher-than-expected credit default rates."
    },
    {
      "heading": "Gradually rebuilding fiscal buffers",
      "content": "- Fiscal position and targets:\n  - 2021 deficit declined to 1¾ percent of GDP from 5¾ percent in 2020.\n  - Public debt: 104 percent at end-2021.\n  - Government fiscal target: a ¾ percent of GDP surplus in 2024.\n- Short-term policy stance:\n  - 2022 budget provides sufficient support in the baseline; automatic stabilizers should be allowed to operate fully.\n  - Cyprus’s social safety net based on a Guaranteed Minimum Income scheme will cushion the most vulnerable.\n  - Additional discretionary support, if needed, should be temporary, targeted, and not hinder labor reallocation; options include extending unemployment benefits tied to labor market activation and scaling up active labor market policies.\n  - Support to viable businesses—especially in tourism—may be needed but could be less necessary if other sectors absorb idle workers.\n  - To cushion higher energy prices: recommend stricter targeting through temporary transfers and avoid pushing the cost onto the energy sector.\n- Medium-term measures:\n  - Maintain strict fiscal discipline; control public sector wage bill and strengthen finances of the National Health System (NHS).\n  - NHS: authorities should address irregularities and continue plan to ensure financial self-sufficiency of public hospitals by [2024].\n  - Reinstating the immovable property tax would help offset spending pressures or alternatively could be used to scale up public investment.\n- Next Generation EU (NGEU) / RRP:\n  - Total budget of Cyprus’s RRP amounts to €1.2 billion (over 5 percent of 2021 GDP).\n  - RRP expected to implement pro-growth reforms and support transition to greener, digital, sustainable economy.\n  - Absorption could be challenging; strengthened public investment management would help."
    },
    {
      "heading": "Safeguarding financial stability",
      "content": "- Current resilience and challenges:\n  - Financial system resilient: liquidity high and capital ratios broadly stable.\n  - ‘stage 2’ loans—performing exposures with significantly deteriorated credit quality—have remained elevated post-pandemic.\n  - Significant progress offloading legacy NPLs, but resolution has been slow; legacy NPLs mostly reside in CACs and public asset management company (KEDIPES).\n- Monitoring and asset-quality measures:\n  - Worsened outlook calls for enhanced monitoring; problem loans concentrated in tourism-related sectors.\n  - Insolvency tools and timely implementation of the EU Directive on Preventive Restructuring and Second Chance are key to restructure viable businesses.\n- NPL resolution and foreclosure framework:\n  - More forceful implementation of existing tools required.\n  - Effective foreclosure framework critical to address strategic defaulters and incentivize restructurings.\n  - Address uncertainties arising from implementation of the 2019 amendments of the Foreclosure Law.\n  - Improve working environment for CACs, including access to the land registry database; continue strengthening CAC oversight.\n- Measures for vulnerable borrowers:\n  - Authorities plan to transfer primary residences and business premises with market value below €350,000 used as collateral to NPLs to KEDIPES after debt-to-asset swap, and introduce a subsidized mortgage-to-rent scheme for vulnerable borrowers.\n  - Scheme should be limited to the most vulnerable households on a means-tested basis, timebound, include robust transfer pricing to minimize fiscal costs and risks, and have strong governance with emphasis on transparency and accountability."
    },
    {
      "heading": "Structural reforms and green transition",
      "content": "- RRP-driven reforms:\n  - RRP measures target rule of law (recruiting and training judges; improving processing to reduce backlog), control of corruption (whistle-blower protection legislation; new independent anti-corruption agency), and government efficiency (e-government, public service reform, administrative decentralization).\n  - Skills and education measures: improve teaching quality, enhance digital skills at all education levels, and strengthen vocational education.\n  - Public investments in digital infrastructure and steps to improve e-communications market functioning.\n  - Mission recommends faster implementation of these well-targeted reforms.\n- Emissions reduction plans:\n  - Authorities target a reduction of 32 percent for the sectors not included in the EU Emissions Trading Scheme (ETS) by 2030 (relative to 2005).\n  - Planned measures: reduce energy dependency and enhance energy efficiency by promoting electricity generation from cleaner sources, improving electricity connectiveness, increasing energy efficiency in the residential sectors, and enhancing public transport.\n  - Government plans to introduce a carbon tax on fuels used in non-ETS sectors.\n  - Planned measures would go a long way toward meeting the target, but financing needs to be identified and additional measures (such as feebates) may be needed to fully achieve it.\n\nSource: Cyprus: Staff Concluding Statement of the 2022 Article IV Mission (March 30, 2022).\n\n---\n\n\n References\n\n- Cyprus and the IMF\n- IMF Policy Advice -- A Factsheet\n- Mission Concluding Statements\n- PRESS CENTER\n- https://www.imf.org/en/home\n\nSource: https://www.imf.org/en/news/articles/2022/03/30/cyprus-staff-concluding-statement-of-the-2022-article-iv-mission"
    }
  ],
  "bullets": [
    "[Markdown version](/en/news/articles/2022/03/30/cyprus-staff-concluding-statement-of-the-2022-article-iv-mission/index.md)",
    "[Structured JSON version](/en/news/articles/2022/03/30/cyprus-staff-concluding-statement-of-the-2022-article-iv-mission/index.json)",
    "[Bundle manifest](/en/news/articles/2022/03/30/cyprus-staff-concluding-statement-of-the-2022-article-iv-mission/bundle-manifest.json)",
    "Published: March 30, 2022",
    "IMF mission met virtually with Cypriot authorities from March 11–28, 2022.",
    "Key near-term challenge: calibrate policy response to the economic fallout from the war in Ukraine.",
    "Baseline: automatic stabilizers allowed to operate; 2022 budget provides sufficient fiscal support in the baseline.",
    "If shock is larger than expected, any additional discretionary support should be temporary, targeted, and not hinder reallocation of labor to expanding sectors.",
    "Medium-term objective: gradual fiscal adjustment to rebuild buffers, aiming to bring the budget close to balance by 2024.",
    "Financial vulnerability reduction: more forceful implementation of existing deleveraging strategy, including:",
    "Structural reforms recommended: strengthen governance, improve judicial efficiency, address skills gaps and mismatches, and close infrastructure gaps to improve growth prospects.",
    "Vulnerabilities:",
    "Growth projections:",
    "Inflation and risks:",
    "Fiscal position and targets:",
    "Short-term policy stance:",
    "Medium-term measures:",
    "Next Generation EU (NGEU) / RRP:",
    "Current resilience and challenges:",
    "Monitoring and asset-quality measures:",
    "NPL resolution and foreclosure framework:",
    "Measures for vulnerable borrowers:",
    "RRP-driven reforms:",
    "Emissions reduction plans:",
    "[Cyprus and the IMF](http://www.imf.org/external/country/CYP/index.htm)",
    "[IMF Policy Advice -- A Factsheet](https://www.imf.org/en/about/factsheets/imf-surveillance)",
    "[Mission Concluding Statements](https://www.imf.org/en/news/searchnews)",
    "[PRESS CENTER](http://presscenter.imf.org/)",
    "[https://www.imf.org/en/home](https://www.imf.org/en/home)"
  ],
  "alternates": {
    "markdown": "/en/news/articles/2022/03/30/cyprus-staff-concluding-statement-of-the-2022-article-iv-mission/index.md",
    "json": "/en/news/articles/2022/03/30/cyprus-staff-concluding-statement-of-the-2022-article-iv-mission/index.json",
    "bundleManifest": "/en/news/articles/2022/03/30/cyprus-staff-concluding-statement-of-the-2022-article-iv-mission/bundle-manifest.json"
  },
  "generatedAtUtc": "2026-09-26T01:05:51.818Z"
}