Cyprus is ageing

According to the recently published by the European Commission ‘Ageing Report’, the Cypriot economy is expected to experience a slowdown of economic growth over the coming decades, from 4.3% during 2004-2010 to 3.5% in 2011-2050, because of the ageing of the population and an assumed slowdown of labour productivity growth.

The Report points that the old-age dependency ratio is projected to rise from 17% in 2004 to 43% in 2050, a higher increase than the EU average. This is predominantly due to a very high rise In pension expenditure, which is projected to show the highest increase in the EU of 12.9pps of GDP.

On the basis of the current budgetary position and the projected budgetary changes over the long-term, Cyprus has a very large sustainability gap of 8.5% of GDP. The long term budgetary impact of ageing population is among the highest in the EU, reflecting a very high increase in pension expenditure as a share of GDP.

According to the Report, Cyprus appears to be at high risk with regard to the sustainability of public finances. EU countries can be divided into three groups with regard to the risk to the sustainability of their public finances in the long term:

• High-risk countries (in alphabetical order): the Czech Republic, Cyprus, Greece, Hungary, Portugal and Slovenia.

• Medium-risk countries: Belgium, France, Germany, Ireland, Italy, Luxembourg, Malta, Slovakia, Spain and the United Kingdom.

• Low-risk countries: Austria, Denmark, Estonia, Finland, Latvia, Lithuania, Netherlands, Poland and Sweden.

In order to cope with the budgetary impact of ageing Member States need to: (a) achieve and sustain sound budgetary positions and run down public debts faster, (b) raise employment rates, especially amongst women and older workers and to raise labour productivity and (c) reform pension, health-care and long-term care systems to ensure they are viable and adequate.