IMF: Cyprus to maintain high surplus with debt dropping below 60% by 2028

Cyprus is set to maintain sizeable fiscal and primary surpluses that will maintain public debt on a downward path which is estimated to drop below the 60% limit of the Maastricht criteria by 2028, IMF has said, stating that economies will be needed to maintain higher primary surpluses to avert rising public debt ratios.

According to the IMF’s Fiscal Monitor for 2023, following two years of deficits due to the Covid-19 pandemic, Cyprus general government balance recorded a surplus in 2022 which it is estimated to continue until the end of the forecast horizon in 2028. Following a surplus of 2.3% of GDP in 2022 Cyprus is expected to record a surplus of 1.9% this year, followed by a surplus of 1.7% of GDP in 2024. In 2025 Cyprus is projected to record a surplus of 1.5% in 2025 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, that is 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% this year 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, the IMF said.

According to the Fiscal Monitor, Cyprus’ gross public debt is projected to remain in 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 to 86.5% last year. In 2023 public debt is forecasted to decline to 79.6% and to 71.9% in 2024 and will continue its downward path reaching 67.8% in 2025. According to the IMF’s projection, Cyprus public debt is estimated to drop further to 62.6% of GDP, 59.4% and 56% in the years 2026, 2027 and 2028 respectively.

With regard to public revenue as a percentage to GDP, the IMF estimates that this year will amount 41% from 41.1% in the previous year and will reach 40.9% in 2024 and 40.6% in 2025, while in the following years will amount around 40% of GDP.

Concerning spending as a percentage to GDP, the IMF forecasts that this year spending will amount to 39.1%, 39.3% in 2024 and 39.1% in 2025. In the following period until 2028, spending will amount to 38.7% in 2025 and 38.8% both 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,” the IMF said.

The Fund pointed out that “governments will need to manage high debt against a backdrop of modest growth and less favorable financing conditions in the medium term.”