CYPRUS: IMF’s Fiscal Monitor expects deterioration of public debt

The International Monetary Fund’s (IMF) 2019 Fiscal Monitor, sees the deterioration of Cyprus’ public debt as a result of the bonds issue to support the sale of the Cooperative Central Bank to Hellenic Bank.

The government issued €3.2bn in bonds in favour of the Co-op bank, to acquire its non-performing loans and other assets after the deal with Hellenic, that acquired the healthy operations of the then state – owned lender.

As a result, the public debt rose to 102.5% of GDP in 2018, from 96% in 2017, and should fall to 94.3% in 2020 and decline further to 67.3% by 2024, according to the report.

In its 2018 Fiscal Monitor, the IMF had predicted that Cyprus’ public debt would go down to 97% of GDP in 2018, 89.5% in 2019 and 83% in 2020.

It also said that gross financing need for 2019 has increased to 8.7% of GDP. The issue of bonds for the Co-op bank caused the non-resident holding of general government debt to decrease to 74.6% in 2018 from 87.4% in 2017.

Moreover, the IMF said that Cyprus maintains strong primary and fiscal surpluses, which help to keep public debt on a declining path. The Fund projects that the primary surplus will fall to 4.1% in 2019 and remain above 4% until 2024, from 5.3% of GDP in 2018.

The report also estimates that budget surplus would go down to 1.85% of GDP this year, from 2.9% of GDP in 2018, rise to 2.0% in 2020 and remain above 2% until 2024.

The IMF also projects a significant deterioration of general government revenue, estimating a decline to 38.4% of GDP in 2019 and to 37.6% in 2020. In the period until 2024 general government revenue is expected to remain at around 37%.

Moreover, the report estimated that General Government expenditure in 2019 would stand at 36.6% of GDP in 2019, the same level as in 2018, then fall to 35.7% of GDP in 2020 and remain at 35% until 2024.

According to the report, pension spending will increase by 0.7% annually until 2030.