{
  "title": "IMF Executive Board Concludes 2022 Article IV Consultation with Cyprus",
  "publication": "IMF News, June 1, 2022",
  "sourceUrl": "https://www.imf.org/en/news/articles/2022/06/01/pr22-cyprus-imf-executive-board-concludes-2022-article-iv-consultation",
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  "summary": "IMF Executive Board Concludes 2022 Article IV Consultation with Cyprus",
  "publishDate": "2022-06-01",
  "sections": [
    {
      "heading": "Macroeconomic performance and recent developments",
      "content": "- Cyprus staged a strong recovery in 2021 driven by successful pandemic management and sizeable policy support.\n- Output returned to its pre-pandemic level and unemployment declined.\n- The current account deficit narrowed to 7¼ percent of GDP with a recovery in exports.\n- Inflation edged up, driven mainly by higher energy prices.\n- The fiscal deficit dropped to around 2 percent of GDP on the back of a cyclical revenue recovery.\n- The public debt ratio declined to 104 percent.\n- Banking sector liquidity remained high and capital ratios broadly stable.\n- Banks made progress in offloading legacy non-performing loans; pandemic effects on credit quality were limited."
    },
    {
      "heading": "Near-term outlook and projections",
      "content": "- Growth:\n  - Growth this year is forecast at around 2 percent, set back by the fallout from the war in Ukraine.\n  - Medium-term growth prospects are supported by investment under Cyprus’s Recovery and Resilience Plan combined with structural reforms.\n- External sector:\n  - The current account is projected to temporarily worsen with a deterioration in the terms-of-trade and higher imports.\n- Inflation:\n  - Inflation will increase further before declining in the medium term.\n- Fiscal:\n  - The slower recovery will stymie fiscal consolidation this year, but the fiscal deficit is still expected to narrow after the phase-out of Covid-related support.\n  - The public debt ratio is set to remain on a firmly declining path.\n- Uncertainty:\n  - The outlook is highly uncertain with risks from an escalation and prolonged duration of the war and sanctions, de-anchoring of inflation expectations in advanced economies, and uncontrolled and more severe Covid outbreaks."
    },
    {
      "heading": "Executive Board assessment and policy guidance",
      "content": "- General assessment:\n  - Directors commended the authorities for their policy response to the pandemic that supported output and employment recovery.\n  - Directors noted a near-term slowdown mainly due to the war in Ukraine, with momentum expected to return over the medium term.\n- Fiscal policy:\n  - Fiscal policy should continue providing support but aim to gradually rebuild buffers.\n  - Support for a gradual fiscal adjustment; any additional discretionary measures, if needed, should be temporary and well-targeted, and not hinder labor reallocation.\n  - Emphasized fiscal discipline over the medium-term to place public debt on a firmly declining path.\n  - Encouraged efforts to control public sector wage growth, address risks from the National Health System, and monitor financial sector contingent liabilities.\n- Financial sector:\n  - The financial system has stayed resilient but requires enhanced monitoring given the worsened outlook.\n  - Address asset quality by more forceful implementation of existing tools to resolve legacy non-performing loans.\n  - Improve the working environment for credit acquiring companies and credit servicing companies.\n  - Stress the criticality of an effective foreclosure framework to address strategic defaulters and provide incentives for borrower engagement in restructurings; enhance implementation of the 2019 amendments to the framework.\n  - Ensure the planned Mortgage-to-Rent scheme is well-targeted to minimize fiscal cost and to ensure transparency and accountability.\n- Structural reforms and governance:\n  - Structural reforms are key to raise medium-term growth potential.\n  - Welcomed progress on the Recovery and Resilience Plan, including passing legislation on corruption and on civil service and local government reforms.\n  - Encouraged continued progress in strengthening AML-CFT and governance frameworks, and in tackling skills, digital, and infrastructure gaps.\n  - Reforms of the judicial system are a priority.\n- Climate and green transition:\n  - Achieving national climate goals can help transition to a more resilient and sustainable growth model.\n  - Recommended continued efforts to address implementation challenges to the green agenda, including the planned green tax reform.\n  - Additional measures, including feebates, to enhance emissions reduction could be considered."
    },
    {
      "heading": "Selected economic indicators (2019–23) — key figures from IMF staff projections",
      "content": "- Output/Demand:\n  - Real GDP: 5.3 (2019), -5.0 (2020), 5.5 (2021), 2.0 (2022), 3.5 (2023)\n  - Domestic demand: 6.0 (2019), -2.9 (2020), 2.7 (2021), 2.6 (2022), 3.0 (2023)\n  - Private consumption: 3.7 (2019), -0.7 (2020), 2.3 (2021), 2.5 (2022)\n  - Public consumption: 12.7 (2019), 15.0 (2020), 8.4 (2021), 1.0 (2022), 2.8 (2023)\n  - Gross capital formation: 10.6 (2019), -11.5 (2020), -6.6 (2021), 5.8 (2022), 5.1 (2023)\n  - Foreign balance 1/: -1.9 (2019), -0.4 (2020), 0.5 (2021)\n  - Exports of goods and services: 7.5 (2019), -5.1 (2020), 13.4 (2021), 4.5 (2022)\n  - Imports of goods and services: 8.3 (2019), -2.5 (2020), 9.5 (2021), 3.9 (2022)\n  - Potential GDP growth: 4.6 (2019), -1.3 (2020), 4.3 (2021), 3.1 (2022)\n  - Output gap (percent of potential GDP): -0.2 (2019), -0.6 (2020)\n- Prices:\n  - HICP (period average, percent): -1.1 (2019)\n  - HICP (end of period, percent): 0.7 (2019), -0.8 (2020), 4.8 (2021)\n- Employment:\n  - Unemployment rate (EU standard, percent): 7.1 (2019), 7.6 (2020), 7.9 (2021)\n  - Employment growth (percent): 0.2 (2019), 3.4 (2020), 0.0 (2021), 1.5 (2022)\n- Public finance:\n  - General government balance: 1.3 (2019), -5.7 (2020), -2.1 (2021), -0.1 (2022)\n  - Revenue: 39.7 (2019), 39.3 (2020), 42.1 (2021), 41.0 (2022), 41.2 (2023)\n  - Expenditure: 38.4 (2019), 45.0 (2020), 44.2 (2021), 42.3 (2022), 41.3 (2023)\n  - Primary Fiscal Balance: -3.6 (2019), -0.3 (2020), 1.4 (2021)\n  - General government debt: 91.1 (2019), 115.0 (2020), 103.9 (2021), 97.7 (2022), 94.1 (2023)\n- Balance of payments:\n  - Current account balance: -10.1 (2019), -7.3 (2020), -8.2 (2021), -6.8 (2022)\n  - Trade Balance (goods and services): 1.1 (2019), 0.3 (2020)\n- Nominal GDP (billions of euros): 23.0 (2019), 21.6 (2020), 23.4 (2021), 24.7 (2022), 26.4 (2023)\n\nSource: IMF Press Release No. 22/178, \"IMF Executive Board Concludes 2022 Article IV Consultation with Cyprus\", June 1, 2022.\n\n---\n\n\n References\n\n- https://www.imf.org/-/media/images/imf/bios/imfboard.jpg\n- The Executive Board\n- Cyprus and the IMF\n- IMF Policy Advice -- A Factsheet\n- Press Releases\n- PRESS CENTER\n- http://www.IMF.org/external/np/sec/misc/qualifiers.htm\n- https://www.imf.org/en/home\n\nSource: https://www.imf.org/en/news/articles/2022/06/01/pr22-cyprus-imf-executive-board-concludes-2022-article-iv-consultation"
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    "Published: June 1, 2022",
    "Cyprus staged a strong recovery in 2021 driven by successful pandemic management and sizeable policy support.",
    "Output returned to its pre-pandemic level and unemployment declined.",
    "The current account deficit narrowed to 7¼ percent of GDP with a recovery in exports.",
    "Inflation edged up, driven mainly by higher energy prices.",
    "The fiscal deficit dropped to around 2 percent of GDP on the back of a cyclical revenue recovery.",
    "The public debt ratio declined to 104 percent.",
    "Banking sector liquidity remained high and capital ratios broadly stable.",
    "Banks made progress in offloading legacy non-performing loans; pandemic effects on credit quality were limited.",
    "Growth:",
    "External sector:",
    "Inflation:",
    "Fiscal:",
    "Uncertainty:",
    "General assessment:",
    "Fiscal policy:",
    "Financial sector:",
    "Structural reforms and governance:",
    "Climate and green transition:",
    "Output/Demand:",
    "Prices:",
    "Employment:",
    "Public finance:",
    "Balance of payments:",
    "Nominal GDP (billions of euros): 23.0 (2019), 21.6 (2020), 23.4 (2021), 24.7 (2022), 26.4 (2023)",
    "[https://www.imf.org/-/media/images/imf/bios/imfboard.jpg](https://www.imf.org/-/media/images/imf/bios/imfboard.jpg)",
    "[The Executive Board](https://www.imf.org/external/np/sec/memdir/eds.aspx)",
    "[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)",
    "[Press Releases](https://www.imf.org/en/news/searchnews)",
    "[PRESS CENTER](http://presscenter.imf.org/)",
    "[http://www.IMF.org/external/np/sec/misc/qualifiers.htm](http://www.imf.org/external/np/sec/misc/qualifiers.htm)",
    "[https://www.imf.org/en/home](https://www.imf.org/en/home)"
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