## IMF Executive Board Concludes 2025 Article IV Consultation with Cyprus

_IMF News, June 2, 2025_

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## Bibliographic details
- Published: June 2, 2025

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### Growth outlook and inflation
- Real GDP growth:
  - 2024: 3.4 percent
  - 2025 (projected): 2.5 percent
  - Medium term: 3 percent
- Drivers of 2024 growth: strong tourism season, continued ICT sector expansion, robust public and private consumption.
- Inflation:
  - Headline inflation fell to 2.1 percent by March 2025.
  - Inflation is anticipated to hit the 2 percent target later this year.
- 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 performance and recommendations
- Fiscal outcomes:
  - Fiscal surplus in 2024: 4.3 percent of GDP
  - Primary fiscal surplus in 2024: 5.6 percent (as cited)
  - Public debt at end-2024: 65 percent of GDP
  - Authorities committed to maintaining fiscal surpluses through 2028 (as specified in the MTFSP under the new EU economic governance framework).
- Policy guidance:
  - Prioritize debt reduction to reduce vulnerabilities and build buffers against shocks; target reduction to well below 60 percent of GDP.
  - Avoid new discretionary measures that would ease fiscal policy and add to inflationary pressures.
  - Emphasize public spending on investment (capital expenditures) to enhance potential growth and facilitate the climate transition.
  - Retain flexibility to respond to economic shocks while constraining expansion of current spending (avoid increasing public wages, broadening subsidies, or introducing untargeted social programs).
  - 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.
  - Careful management of fiscal space is essential given costs of climate and digital transitions and aging-related pension and healthcare pressures.

### Banking sector and macroprudential policy
- Banking sector strengths:
  - Substantial capital and liquidity buffers.
  - Profitability metrics reached record highs for the second consecutive year.
  - Capitalization levels are among the highest in Europe.
  - Asset quality improving despite elevated interest rates.
- Risks and legacy issues:
  - Overall banking sector risks appear contained, but vigilance is needed, particularly concerning the real estate sector.
  - Legacy NPLs continue to decrease but remain at elevated levels; most have been transitioned away from the banking sector.
  - 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.
- Macroprudential stance:
  - Recent tightening (including announced increase in the CCyB) will bolster resilience by securing already high capital buffers without adversely affecting credit availability or growth.
  - Future macroprudential calibration should balance financial stability and effective credit intermediation.

### External sector and balance-sheet indicators
- 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:
  - Net IIP:
    - 2021: -105.7
    - 2022: -95.2
    - 2023: -92.7
    - 2024: -98.5
    - 2025: -99.3
    - 2026: -102.6
    - 2027: -106.9
    - 2028: -111.7
    - 2029: -114.6
    - 2030: -118.8
  - External debt (levels):
    - 2021: 994.1
    - 2022: 879.7
    - 2023: 828.3
    - 2024: 767.6
    - 2025: 706.8
    - 2026: 669.0
    - 2027: 631.4
    - 2028: 595.8
    - 2029: 564.1
    - 2030: 534.0
- Current account and trade balances (selected entries):
  - Current account balance:
    - 2021: -5.4
    - 2022: -9.7
    - 2023: -6.1
    - 2024: -7.1
    - 2025: -7.7
    - 2026: -8.2
    - 2027: -8.7
    - 2028: -9.1
    - 2029: -9.4
  - Services balance:
    - 2021: 21.6
    - 2022: 23.3
    - 2023: 24.7
    - 2024: 24.0
    - 2025: 22.9
    - 2026: 23.2
    - 2027: 23.5
    - 2028: 23.9
    - 2029: 24.4
    - 2030: 24.9
  - Goods balance:
    - 2021: -16.9
    - 2022: -19.7
    - 2023: -23.7
    - 2024: -20.4
    - 2025: -21.4
    - 2026: -22.4
    - 2027: -23.3
    - 2028: -24.2
    - 2029: -24.9
    - 2030: -25.6

### Structural reforms, energy, and AML
- Structural priorities:
  - Enhance judicial efficiency, including insolvency and creditor rights, and improve court efficiency.
  - Boost labor productivity by addressing skill gaps and mismatches and engaging remaining segments of the labor force, particularly youth and the long-term unemployed.
  - Create a stable and streamlined business environment to sustain investment-driven growth and capital deepening.
- Energy sector priorities:
  - Expedite key energy projects and reforms to reduce energy costs, enhance energy security, and fulfill climate commitments.
  - Complete the LNG terminal and improve electricity interconnectedness.
  - Increase competition in the electricity market to lower costs and emissions.
  - Planned introduction of green taxation to facilitate the energy transition.
- AML and sanctions implementation:
  - Maintain a strong AML framework to mitigate reputational risks and business uncertainty.
  - Commendable efforts to broaden the definition of obliged entities for AML supervision.
  - Proposed establishment of the National Sanctions Implementation Unit at the Ministry of Finance will enhance clarity for reporting entities regarding sanctions compliance.

### Executive Board assessment and risks
- Board assessment highlights:
  - Cyprus demonstrated remarkable economic resilience, with growth among the highest in the EA.
  - Labor market remains tight with declining unemployment and elevated job vacancy levels.
  - Indications of potential overheating in the economy.
  - External position weaker than implied by fundamentals.
- Risks:
  - 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.
  - Medium-to-long-term risk: insufficient progress on structural reforms could undermine investment-driven growth.
  - Upside: Cyprus's agile and dynamic economy offers substantial potential for growth if reforms proceed.

### Key statistics (selected)
- 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) 

*Source: IMF Executive Board press release on the conclusion of the 2025 Article IV Consultation with Cyprus.*

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## References

- [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)
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_Source: https://www.imf.org/en/news/articles/2025/06/02/pr-25171-cyprus-imf-concludes-2025-art-iv-consultation_