{
  "title": "IMF Executive Board Concludes 2025 Article IV Consultation with Cyprus",
  "publication": "IMF News, June 2, 2025",
  "sourceUrl": "https://www.imf.org/en/news/articles/2025/06/02/pr-25171-cyprus-imf-concludes-2025-art-iv-consultation",
  "canonical": "https://www.imf.org/en/news/articles/2025/06/02/pr-25171-cyprus-imf-concludes-2025-art-iv-consultation",
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  "summary": "The Executive Board of the International Monetary Fund (IMF) completed the Article IV Consultation for Cyprus and endorsed the staff appraisal without a meeting",
  "publishDate": "2025-06-02",
  "sections": [
    {
      "heading": "Growth outlook and inflation",
      "content": "- Real GDP growth:\n  - 2024: 3.4 percent\n  - 2025 (projected): 2.5 percent\n  - Medium term: 3 percent\n- Drivers of 2024 growth: strong tourism season, continued ICT sector expansion, robust public and private consumption.\n- Inflation:\n  - Headline inflation fell to 2.1 percent by March 2025.\n  - Inflation is anticipated to hit the 2 percent target later this year.\n- Near-term risks: downside, including elevated uncertainty from global trade tensions.\n- Longer-term risks: more balanced; insufficient progress on structural reforms could restrain upside potential."
    },
    {
      "heading": "Fiscal performance and recommendations",
      "content": "- Fiscal outcomes:\n  - Fiscal surplus in 2024: 4.3 percent of GDP\n  - Primary fiscal surplus in 2024: 5.6 percent (as cited)\n  - Public debt at end-2024: 65 percent of GDP\n  - Authorities committed to maintaining fiscal surpluses through 2028 (as specified in the MTFSP under the new EU economic governance framework).\n- Policy guidance:\n  - Prioritize debt reduction to reduce vulnerabilities and build buffers against shocks; target reduction to well below 60 percent of GDP.\n  - Avoid new discretionary measures that would ease fiscal policy and add to inflationary pressures.\n  - Emphasize public spending on investment (capital expenditures) to enhance potential growth and facilitate the climate transition.\n  - Retain flexibility to respond to economic shocks while constraining expansion of current spending (avoid increasing public wages, broadening subsidies, or introducing untargeted social programs).\n  - Specifically resist further increases to the COLA indexation or new ad-hoc salary increases to contain the public-private wage gap and prevent additional pressure on real wage growth.\n  - Careful management of fiscal space is essential given costs of climate and digital transitions and aging-related pension and healthcare pressures."
    },
    {
      "heading": "Banking sector and macroprudential policy",
      "content": "- Banking sector strengths:\n  - Substantial capital and liquidity buffers.\n  - Profitability metrics reached record highs for the second consecutive year.\n  - Capitalization levels are among the highest in Europe.\n  - Asset quality improving despite elevated interest rates.\n- Risks and legacy issues:\n  - Overall banking sector risks appear contained, but vigilance is needed, particularly concerning the real estate sector.\n  - Legacy NPLs continue to decrease but remain at elevated levels; most have been transitioned away from the banking sector.\n  - Full operationalization of the foreclosure framework and strong uptake of the mortgage-to-rent scheme are expected to accelerate NPL resolution and help mobilize domestic capital.\n- Macroprudential stance:\n  - Recent tightening (including announced increase in the CCyB) will bolster resilience by securing already high capital buffers without adversely affecting credit availability or growth.\n  - Future macroprudential calibration should balance financial stability and effective credit intermediation."
    },
    {
      "heading": "External sector and balance-sheet indicators",
      "content": "- External position: current account deficit estimated to have moderated in 2024 but assessed as weaker than the level implied by fundamentals.\n- External vulnerabilities and financing:\n  - Net IIP:\n    - 2021: -105.7\n    - 2022: -95.2\n    - 2023: -92.7\n    - 2024: -98.5\n    - 2025: -99.3\n    - 2026: -102.6\n    - 2027: -106.9\n    - 2028: -111.7\n    - 2029: -114.6\n    - 2030: -118.8\n  - External debt (levels):\n    - 2021: 994.1\n    - 2022: 879.7\n    - 2023: 828.3\n    - 2024: 767.6\n    - 2025: 706.8\n    - 2026: 669.0\n    - 2027: 631.4\n    - 2028: 595.8\n    - 2029: 564.1\n    - 2030: 534.0\n- Current account and trade balances (selected entries):\n  - Current account balance:\n    - 2021: -5.4\n    - 2022: -9.7\n    - 2023: -6.1\n    - 2024: -7.1\n    - 2025: -7.7\n    - 2026: -8.2\n    - 2027: -8.7\n    - 2028: -9.1\n    - 2029: -9.4\n  - Services balance:\n    - 2021: 21.6\n    - 2022: 23.3\n    - 2023: 24.7\n    - 2024: 24.0\n    - 2025: 22.9\n    - 2026: 23.2\n    - 2027: 23.5\n    - 2028: 23.9\n    - 2029: 24.4\n    - 2030: 24.9\n  - Goods balance:\n    - 2021: -16.9\n    - 2022: -19.7\n    - 2023: -23.7\n    - 2024: -20.4\n    - 2025: -21.4\n    - 2026: -22.4\n    - 2027: -23.3\n    - 2028: -24.2\n    - 2029: -24.9\n    - 2030: -25.6"
    },
    {
      "heading": "Structural reforms, energy, and AML",
      "content": "- Structural priorities:\n  - Enhance judicial efficiency, including insolvency and creditor rights, and improve court efficiency.\n  - Boost labor productivity by addressing skill gaps and mismatches and engaging remaining segments of the labor force, particularly youth and the long-term unemployed.\n  - Create a stable and streamlined business environment to sustain investment-driven growth and capital deepening.\n- Energy sector priorities:\n  - Expedite key energy projects and reforms to reduce energy costs, enhance energy security, and fulfill climate commitments.\n  - Complete the LNG terminal and improve electricity interconnectedness.\n  - Increase competition in the electricity market to lower costs and emissions.\n  - Planned introduction of green taxation to facilitate the energy transition.\n- AML and sanctions implementation:\n  - Maintain a strong AML framework to mitigate reputational risks and business uncertainty.\n  - Commendable efforts to broaden the definition of obliged entities for AML supervision.\n  - Proposed establishment of the National Sanctions Implementation Unit at the Ministry of Finance will enhance clarity for reporting entities regarding sanctions compliance."
    },
    {
      "heading": "Executive Board assessment and risks",
      "content": "- Board assessment highlights:\n  - Cyprus demonstrated remarkable economic resilience, with growth among the highest in the EA.\n  - Labor market remains tight with declining unemployment and elevated job vacancy levels.\n  - Indications of potential overheating in the economy.\n  - External position weaker than implied by fundamentals.\n- Risks:\n  - Downside near-term risks: escalation of trade conflicts (including services trade and FDI), escalation of regional tensions, new energy price shocks, and more accommodative fiscal policy domestically.\n  - Medium-to-long-term risk: insufficient progress on structural reforms could undermine investment-driven growth.\n  - Upside: Cyprus's agile and dynamic economy offers substantial potential for growth if reforms proceed."
    },
    {
      "heading": "Key statistics (selected)",
      "content": "- Real GDP growth: 11.4 (2021), 7.2 (2022), 2.8 (2023), 3.4 (2024), 2.5 (2025), 2.7 (2026), 3.0 (2027)\n- Domestic demand contributions: 5.6 (2021), 8.5 (2022), 5.2 (2023), 0.7 (2024), 4.6 (2025)\n- Unemployment rate (percent, period average): 6.3 (2021), 4.9 (2022)\n- Revenue (percent of GDP): 41.0 (2021), 40.6 (2022), 43.7 (2023), 44.3 (2024), 44.7 (2025), 43.3 (2026), 43.2 (2027)\n- Expenditure (percent of GDP): 42.6 (2021), 38.0 (2022), 42.0 (2023), 40.0 (2024), 40.9 (2025), 40.8 (2026), 41.1 (2027)\n- General government debt (percent of GDP): 96.5 (2021), 81.1 (2022), 73.6 (2023), 65.1 (2024), 60.2 (2025), 54.9 (2026), 49.7 (2027), 44.5 (2028), 41.2 (2029), 38.3 (2030)\n- Nominal GDP (billions of euros): 25.7 (2021), 29.4 (2022), 31.3 (2023), 33.6 (2024), 36.0 (2025), 37.6 (2026), 39.3 (2027), 42.9 (2028), 44.9 (2029), 46.9 (2030) \n\nSource: IMF Executive Board press release on the conclusion of the 2025 Article IV Consultation with Cyprus.\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- https://www.imf.org/en/home\n\nSource: https://www.imf.org/en/news/articles/2025/06/02/pr-25171-cyprus-imf-concludes-2025-art-iv-consultation"
    }
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    "Published: June 2, 2025",
    "Real GDP growth:",
    "Drivers of 2024 growth: strong tourism season, continued ICT sector expansion, robust public and private consumption.",
    "Inflation:",
    "Near-term risks: downside, including elevated uncertainty from global trade tensions.",
    "Longer-term risks: more balanced; insufficient progress on structural reforms could restrain upside potential.",
    "Fiscal outcomes:",
    "Policy guidance:",
    "Banking sector strengths:",
    "Risks and legacy issues:",
    "Macroprudential stance:",
    "External position: current account deficit estimated to have moderated in 2024 but assessed as weaker than the level implied by fundamentals.",
    "External vulnerabilities and financing:",
    "Current account and trade balances (selected entries):",
    "Structural priorities:",
    "Energy sector priorities:",
    "AML and sanctions implementation:",
    "Board assessment highlights:",
    "Risks:",
    "Real GDP growth: 11.4 (2021), 7.2 (2022), 2.8 (2023), 3.4 (2024), 2.5 (2025), 2.7 (2026), 3.0 (2027)",
    "Domestic demand contributions: 5.6 (2021), 8.5 (2022), 5.2 (2023), 0.7 (2024), 4.6 (2025)",
    "Unemployment rate (percent, period average): 6.3 (2021), 4.9 (2022)",
    "Revenue (percent of GDP): 41.0 (2021), 40.6 (2022), 43.7 (2023), 44.3 (2024), 44.7 (2025), 43.3 (2026), 43.2 (2027)",
    "Expenditure (percent of GDP): 42.6 (2021), 38.0 (2022), 42.0 (2023), 40.0 (2024), 40.9 (2025), 40.8 (2026), 41.1 (2027)",
    "General government debt (percent of GDP): 96.5 (2021), 81.1 (2022), 73.6 (2023), 65.1 (2024), 60.2 (2025), 54.9 (2026), 49.7 (2027), 44.5 (2028), 41.2 (2029), 38.3 (2030)",
    "Nominal GDP (billions of euros): 25.7 (2021), 29.4 (2022), 31.3 (2023), 33.6 (2024), 36.0 (2025), 37.6 (2026), 39.3 (2027), 42.9 (2028), 44.9 (2029), 46.9 (2030)",
    "[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/)",
    "[https://www.imf.org/en/home](https://www.imf.org/en/home)"
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