Economic Assessment of Cyprus in 2024

Nov 28, 2024

Post-Programme Surveillance Report: Cyprus, Autumn 2024

Overview

  • The report is part of the European Economy Institutional Papers by the European Commission's Directorate-General for Economic and Financial Affairs.
  • It assesses Cyprus's economic, fiscal, and financial conditions post-economic assistance program.
  • Information and projections are based on data available until 31 October 2024.

Key Contributors

  • Prepared under guidance from Declan Costello, Luc Tholoniat, among others.
  • Contributions from staff of the ECB and the ESM were included.

Executive Summary

  • 17th surveillance mission to Cyprus from 30 September to 7 October 2024.
  • Macroeconomic outlook is strong; year-on-year growth at 3.7% in H1 2024.
  • Fiscal outlook favorable with budget surpluses and declining public debt-to-GDP ratio.
  • Banking sector shows resilience with high profitability and declining NPLs.

Macroeconomic Developments

  • Strong investment and net exports drive economic growth.
  • GDP growth forecast at 3.6% in 2024, tapering to 2.5% by 2026.
  • Risks include geopolitical tensions and energy price volatility.
  • Robust labor market; unemployment rate declining.

Public Finance Developments

  • General government budget surplus projected at 3.5% of GDP in 2024.
  • Revenue driven by social security, income taxes, and VAT.
  • Public spending increased due to wages, health, and social security.
  • Risks from large projects like LNG terminal.

Financial Sector Developments

Banking Sector

  • High profitability sustained by net interest income.
  • Strong capital adequacy; CET1 ratio at 22.5%.
  • Low competition for deposits, high liquidity ratios.
  • Steady lending activity; decline in NPLs and renegotiated loans.

Risks and Oversight

  • Macrofinancial risks from household and NFC debt.
  • Emerging risks from geopolitical, climate, and cybersecurity threats.
  • High exposure to real estate, but no major deterioration observed.

KEDIPES and Reforms

  • Ongoing mortgage-to-rent scheme and foreclosure process reforms.
  • Limited role of capital markets; focus on banking for corporate funding.

Sovereign Financing and Capacity to Repay

  • Debt-to-GDP ratio declining, projected at 56.7% in 2026.
  • Low gross financing needs and favorable debt maturity profile.
  • Strong market perception with credit rating upgrades.
  • Scheduled ESM debt repayments from 2025 to 2031.

Annexes

  • Main macroeconomic indicators and debt sustainability analysis included.
  • Cyprus maintains low short and long-term fiscal sustainability risks.
  • Structural reforms and fiscal measures key to sustaining economic stability.

  • Additional Resources: European Commission publications are available online.
  • Contact Information: Directorate-General for Economic and Financial Affairs, European Commission.