IMF Projects Positive Fiscal Outlook for Cyprus, Anticipates Reduced Debt

The International Monetary Fund (IMF) has released a favorable fiscal outlook for Cyprus, predicting substantial primary surpluses and a significant reduction in public debt, which is expected to drop below the Maastricht Treaty's 60% of GDP limit.

According to the IMF's Fiscal Monitor report, Cyprus is expected to maintain surpluses through 2028, with an average surplus of nearly 1.4% of GDP during this period.

Specifically, the IMF projects a surplus of 1.9% of GDP for Cyprus in 2023, with surpluses of 1.7% in 2024 and 1.5% in 2025. From 2026 to 2028, surpluses are estimated to be around 1.3%, 1.0%, and 0.9%, respectively.

The IMF highlights substantial primary surpluses (excluding debt service expenditures) for Cyprus throughout the entire projection period. In 2023, the primary balance is expected to reach 3.2% of GDP, decreasing to 3.0% in 2024 and 2.7% in 2025. For the period from 2026 to 2028, the IMF estimates primary surpluses of 2.5%, 2.2%, and 2.2%, respectively.

Regarding public revenues as a share of GDP, the IMF forecasts a decrease from 42% in 2022 to 40.5% in 2023, 40.3% in 2024, and 40% in 2025. The estimates for the years 2026, 2027, and 2028 stand at 39.4%, 39.2%, and 39.1% of GDP, respectively.

Government expenditures in Cyprus are set to decrease from 39.8% in the previous year to 38.6% in 2023, rising slightly to 38.7% in 2024 and then falling to 38.5% in 2025. For the period from 2026 to 2028, stability is projected at 38.2%.

The IMF's estimation for Cyprus's gross public debt is 78.6% of GDP in 2023, decreasing to 70.9% in 2024 and 66.8% in 2025. The report anticipates a further decline to 61.7% in 2026, with Cyprus's debt expected to fall below the 60% threshold to 58.4% in 2027 and 55.1% in 2028.

It's noteworthy that this year's estimates are more optimistic compared to last year's Fiscal Outlook, primarily due to a nominal GDP increase caused by high inflation. The previous Fiscal Outlook had projected Cyprus's debt to reach 66.2% at the end of the period.

Finally, the gross financing needs for 2023 remain unchanged at 8.1% of GDP. The IMF's outlook suggests positive trends in Cyprus's fiscal health, marked by surpluses and a reduction in public debt.

By fLEXI tEAM