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IMF: Cyprus to reduce public debt

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Cyprus will maintain a sizeable fiscal and primary surplus keeping public debt on a downward path estimated to drop below the 60% GDP eurozone criteria by 2028, the IMF said.

According to the IMF’s Fiscal Monitor, following two years of deficits due to the Covid-19 pandemic, Cyprus’ general government balance recorded a surplus in 2022, estimated to continue until the end of the forecast horizon in 2028.

Following a surplus of 2.3% of GDP last year, Cyprus is expected to record a surplus of 1.9%, followed by a surplus of 1.7% of GDP in 2024.

In 2025, it is projected to record a surplus of 1.5%, followed by a surplus of 1.3% in 2026 and 1% in 2027 and 2028, respectively.

IMF also projects high primary surpluses for the general government, excluding debt servicing expenditure.

In 2022, Cyprus recorded a primary surplus of 3.7% of GDP and is estimated to register a surplus of 3.2%, followed by 3% in 2024.

In 2025, Cyprus’ primary surplus is projected to decline to 2.8%, whereas surpluses will continue in 2026, 2027 and 2028 with 2.6%, 2.3% and 2.2%, respectively.

According to the Fiscal Monitor, Cyprus’ gross public debt will remain on a firm downward path.

After spiking to 113.5% of GDP during the 2020 Covid-19 pandemic, Cyprus’ debt declined to 101.1% of GDP and 86.5% last year.

This year public debt is forecast to decline to 79.6% and 71.9% in 2024 and will continue its downward path reaching 67.8% in 2025.

According to the IMF, public debt is estimated to drop further to 62.6% of GDP, 59.4% and 56% in 2026, 2027 and 2028, respectively.

Regarding public revenue as a percentage of GDP, the IMF estimates it will be 41% from 41.1% in the previous year and reach 40.9% in 2024 and 40.6% in 2025, while in the following years reach 40% of GDP.

Concerning spending as a percentage of GDP, the IMF forecasts that it will amount to 39.1%, 39.3% in 2024 and 39.1% in 2025.

Afterwards, until 2028, spending will amount to 38.7% of GDP in 2025 and 38.8% for 2027 and 2028.

“Under current projections, advanced and emerging market economies will require larger primary balances to prevent a further rise in debt ratios”.

“Governments will need to manage high debt against a backdrop of modest growth and less favourable financing conditions in the medium term.”