{
  "title": "IMF Executive Board Concludes 2024 Article IV Consultation with Cyprus",
  "publication": "IMF News, May 28, 2024",
  "sourceUrl": "https://www.imf.org/en/news/articles/2024/05/28/pr24186-imf-concludes-2024-article-iv-consultation-with-cyprus",
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  "summary": "Cyprus recovered swiftly from the pandemic and has proven resilient to multiple adverse shocks. Growth moderated in 2023 but remained robust, above the euro area (EA) average, supported by a continued recovery in tourism, financial services and expanding ICT activity, and strong investments.",
  "publishDate": "2024-05-28",
  "sections": [
    {
      "heading": "Recent performance and macroeconomic setting",
      "content": "- Cyprus recovered swiftly from the pandemic and proved resilient to multiple adverse shocks.\n- Growth moderated in 2023 but remained robust, above the euro area (EA) average, supported by a continued recovery in tourism, financial services and expanding ICT activity, and strong investments.\n- Headline inflation has fallen below 2 percent, supported by declining energy prices and tighter monetary policy; core inflation has been more persistent.\n- Strong fiscal performance driven by robust revenue growth has contributed to a large decline in public debt.\n- The banking sector has sizable capital and liquidity buffers; despite tight financial conditions, risks appear to have declined."
    },
    {
      "heading": "Outlook and risks",
      "content": "- Growth projections:\n  - Real GDP: 2022: 5.1; 2023: 2.5; 2024: 2.6; 2025: 2.8; 2026: 3.0; 2027: 3.1.\n  - Potential GDP growth: 4.5 (most recent).\n- Inflation projections:\n  - HICP (period average, Seasonally Adjusted): 2022: 8.1; 2023: 3.9; 2024: 2.2; 2025: 2.0.\n  - HICP (end of period, Seasonally Adjusted): 2022: 7.6; 2023: (value not listed for 2024 end).\n- Unemployment and labor:\n  - Unemployment rate (percent, period average): 2022: 6.8; 2023: 5.9; 2024: 5.7; 2025: 5.5.\n  - Employment growth (percent, period average): 2022: 4.4; 2023: 1.2.\n  - Labor force: 2022: 3.6; 2023: 2.1; 2024: 0.9.\n- External position and financial flows:\n  - Current account balance: 2022: -7.9; 2023: -12.1; 2024: -11.1; 2025: -10.2; 2026: -10.0; 2027: -9.6.\n  - Trade Balance (goods and services): 2022: -0.9; 2023: -0.7; 2024: -0.6.\n  - Goods balance: 2022: -21.5; 2023: -23.9; 2024: -22.3; 2025: -21.7; 2026: -21.3; 2027: -20.9.\n  - Services balance: 2022: 21.8; 2023: 23.0; 2024: 21.4; 2025: 21.0; 2026: 20.7; 2027: 20.4.\n  - Direct investment: 2022: -30.4; 2023: -12.6; 2024: -12.0; 2025: -11.9; 2026: -19.3.\n  - Nominal GDP (billions of euros): 2022: 27.8; 2023: 29.8; 2024: 31.7; 2025: 33.4; 2026: 35.2; 2027: 37.1.\n\n- Outlook summary:\n  - Growth is expected to remain stable in 2024, supported by rising real incomes and FDI and EU RRP inflows, before gradually rising to its estimated potential of 3 percent over the medium term.\n  - Inflation around 2 percent in 2024 due to unwinding of negative energy price effects and administrative price measures, offset by high interest rates, negative base effects, and more stable international prices.\n- Risks:\n  - Short-term risks are mostly external and to the downside, including a downturn in major tourism markets, an escalation of regional conflicts, and delays in RRP implementation.\n  - Medium-term risks from climate change are counterbalanced by upside potential from attracting more foreign investment and talent."
    },
    {
      "heading": "Executive Board assessment and policy recommendations",
      "content": "- Executive Directors agreed with the thrust of the staff appraisal and commended the economy’s resilience.\n- Fiscal policy:\n  - Aim at reducing debt and maintaining space for long‑term spending needs.\n  - Authorities’ planned fiscal stance in 2024 judged appropriate.\n  - Large primary surpluses should be maintained until public debt falls comfortably below 60 percent of GDP.\n  - Directors highlighted sizable long‑term spending needs from aging and climate challenges and called for preserving fiscal space.\n  - Supporting measures recommended: phasing out electricity subsidies and VAT exemptions as planned; avoiding further wage indexation; prioritizing investments; implementing healthcare reforms; strengthening SOE oversight.\n- Financial sector:\n  - Noted high capitalization and liquidity of the banking system.\n  - Financial sector risks appear to have declined despite tightening conditions; recent uptick in loan renegotiations should be closely monitored.\n  - Welcomed the increase in counter‑cyclical buffers; called for continued vigilance of systemic real estate risks and non‑bank financial institutions.\n  - Encouraged allowing the recently amended foreclosure framework to operate together with the mortgage‑to‑rent scheme to accelerate resolution of legacy NPLs.\n- Structural reforms and governance:\n  - Stressed importance of structural reforms to support diversification of Cyprus’s growth model.\n  - Called for further judicial and labor market reforms to streamline the business environment and address skill‑mismatches.\n  - Recommended a robust AML/CFT framework, with a single supervisory framework for administrative services and further strengthening of implementation efforts, including in real estate.\n  - Policies to promote domestic savings and entrepreneurial opportunities to help rebalance the current account while supporting long‑term growth.\n- Climate and energy:\n  - Commended authorities for ambitious climate objectives.\n  - Emphasized need for forceful implementation of energy infrastructure projects and additional mitigation measures.\n  - Authorities’ green taxation plans deemed helpful; the scope of the carbon tax should be widened and coupled with targeted sectoral policies.\n  - Careful assessment of climate risks along with an adaptation strategy are needed to limit the cost of climate change."
    },
    {
      "heading": "Key fiscal and balance-sheet indicators",
      "content": "- General government balance (percent of GDP): 2022: 1.4.\n- Revenue (percent of GDP): 2022: 41.5; 2023: 43.3; 2024: 43.6; 2025: 43.5; 2026: 42.8.\n- Expenditure (percent of GDP): 2022: 38.8; 2023: 40.2; 2024: 41.0; 2025: 41.1; 2026: 41.3.\n- Primary Fiscal Balance (percent of GDP): 2022: 4.1; 2023: 4.0.\n- General government debt (percent of GDP): 2022: 85.6; 2023: 77.3; 2024: 71.1; 2025: 65.7; 2026: 60.7; 2027: 56.7.\n- External debt: 2022: 609.6; 2023: 576.0; 2024: 558.3; 2025: 523.2; 2026: 491.0; 2027: 460.8.\n- Net IIP: 2022: -96.2; 2023: -96.4; 2024: -106.5; 2025: -111.1; 2026: -113.9; 2027: -116.0.\n- National saving (percent of GDP): 2022: 28.4; 2023: 34.2; 2024: 32.9; 2025: 32.1; 2026: 31.8.\n- Government saving (percent of GDP): 2022: 6.2; 2023: 7.3; 2024: 5.2.\n- Non‑government saving (percent of GDP): 2022: 22.3; 2023: 26.9; 2024: 26.7; 2025: 25.9; 2026: 26.5.\n- Memorandum items and balances: Saving‑Investment Balance and components shown in source table.\n\nSource: Press Release No. 24/186 — IMF Executive Board Concludes 2024 Article IV Consultation with Cyprus (May 28, 2024).\n\n---\n\n\n References\n\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/2024/05/28/pr24186-imf-concludes-2024-article-iv-consultation-with-cyprus"
    }
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    "Published: May 28, 2024",
    "Cyprus recovered swiftly from the pandemic and proved resilient to multiple adverse shocks.",
    "Growth moderated in 2023 but remained robust, above the euro area (EA) average, supported by a continued recovery in tourism, financial services and expanding ICT activity, and strong investments.",
    "Headline inflation has fallen below 2 percent, supported by declining energy prices and tighter monetary policy; core inflation has been more persistent.",
    "Strong fiscal performance driven by robust revenue growth has contributed to a large decline in public debt.",
    "The banking sector has sizable capital and liquidity buffers; despite tight financial conditions, risks appear to have declined.",
    "Growth projections:",
    "Inflation projections:",
    "Unemployment and labor:",
    "External position and financial flows:",
    "Outlook summary:",
    "Risks:",
    "Executive Directors agreed with the thrust of the staff appraisal and commended the economy’s resilience.",
    "Fiscal policy:",
    "Financial sector:",
    "Structural reforms and governance:",
    "Climate and energy:",
    "General government balance (percent of GDP): 2022: 1.4.",
    "Revenue (percent of GDP): 2022: 41.5; 2023: 43.3; 2024: 43.6; 2025: 43.5; 2026: 42.8.",
    "Expenditure (percent of GDP): 2022: 38.8; 2023: 40.2; 2024: 41.0; 2025: 41.1; 2026: 41.3.",
    "Primary Fiscal Balance (percent of GDP): 2022: 4.1; 2023: 4.0.",
    "General government debt (percent of GDP): 2022: 85.6; 2023: 77.3; 2024: 71.1; 2025: 65.7; 2026: 60.7; 2027: 56.7.",
    "External debt: 2022: 609.6; 2023: 576.0; 2024: 558.3; 2025: 523.2; 2026: 491.0; 2027: 460.8.",
    "Net IIP: 2022: -96.2; 2023: -96.4; 2024: -106.5; 2025: -111.1; 2026: -113.9; 2027: -116.0.",
    "National saving (percent of GDP): 2022: 28.4; 2023: 34.2; 2024: 32.9; 2025: 32.1; 2026: 31.8.",
    "Government saving (percent of GDP): 2022: 6.2; 2023: 7.3; 2024: 5.2.",
    "Non‑government saving (percent of GDP): 2022: 22.3; 2023: 26.9; 2024: 26.7; 2025: 25.9; 2026: 26.5.",
    "Memorandum items and balances: Saving‑Investment Balance and components shown in source table.",
    "[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/)",
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