IMF Staff Country Reports

The 2025 Article IV Consultation highlights that growth is expected to decelerate to 2.5 percent in 2025 and stabilize at 3 percent in the medium term as Cyprus shifts toward more investment-driven growth. The immediate outlook presents downside risks, while longer-term risks appear more balanced. An escalation of trade conflicts—particularly if this broadened to include services trade and foreign direct investment—poses an important downside risk. The fiscal surplus reached an impressive 4.3 percent of gross domestic product (GDP) in 2024, while public debt declined to 65 percent of GDP. Fiscal policy should continue to prioritize debt reduction to further build buffers against potential shocks. The banking sector boasts substantial capital and liquidity buffers, with financial risks appearing well contained. The recent tightening of the macroprudential policy stance will further enhance these financial buffers. Fiscal policy should continue to prioritize debt reduction. Given overheating risks, it is crucial to avoid new discretionary measures that would ease fiscal policy and add to inflationary pressures. Structural reforms aimed at enhancing judicial efficiency and boosting labor productivity are vital for fostering long-term growth. With employment levels already high, capital deepening will increasingly drive growth.