An International Monetary Fund (IMF) mission visited Cyprus from March 17-28, 2025, to consult with the Cypriot authorities about the country's recent economic developments, future outlook, risks, and policy priorities. Upon the visit's conclusion, the preliminary findings were documented in a Concluding Statement, which captures the insights of the IMF staff and does not represent the views of the IMF’s Executive Board.
IMF mission chief for Cyprus, Alex Pienkowski, stated, “Cyprus has demonstrated impressive resilience to successive shocks. Growth has remained among the highest in the euro area, mainly supported by foreign investment, strong tourism, and a boom in the ICT sector.” While inflation has begun to decline, it remains above the 2 percent mark, with signs of mild overheating in the economy. Fiscal health shows strength, indicative of a downward shift in public debt.
Key observations from the mission include robust growth supported by high service exports and consumer activity, though signs of overheating are present. In 2024, Cyprus recorded a 3.4 percent growth rate, among the top in the euro area. Nonetheless, growth is projected to moderate to about 2.5 percent this year.
The labor market is notably tight, with decreasing unemployment rates and moderating but high vacancy rates. Inflation, while slightly elevated due to rising service prices and past energy price shocks, is expected to stabilize by year-end.
The fiscal position is strong, significantly lowering public debt from 74 percent of GDP in 2023 to 65 percent in 2024. This was achieved through strong revenue growth, despite increased public expenses.
The IMF has cautioned Cyprus on several risks. In the short term, the risks are negative, involving trade conflicts and potential regional tensions affecting key trade partners, and new energy price shocks. Domestically, the risks of further economic overheating and reliance on investment-driven growth were noted, necessitating steady progress on structural reforms.
Fiscal strategies should prioritize debt reduction and protect fiscal space due to rising needs from climate, digital transitions, and population aging. The policy must reinforce debt going below 60 percent of GDP and continue surpluses until 2028, as stipulated in the Medium-Term Fiscal Structural Plan.
There should be caution in increasing the public wage bill, subsidies, or untargeted social programs to preserve fiscal flexibility. Managing emerging fiscal risks is crucial due to potential new demands for funding energy projects, a mortgage-to-rent scheme, and carbon rights.
In the financial sector, resilience is maintained through substantial capital and liquidity buffers. Profitability remains high, and non-performing loans (NPLs) have decreased. Yet, continued attention is necessary, including monitoring the real estate sector.
Structural reforms are crucial for judicial efficiency and boosting labor productivity. Important energy projects and reforms must be accelerated to lower energy prices and improve energy security. Anti-money laundering frameworks remain pivotal for minimizing reputational risks, with efforts ongoing to refine defined entities for supervision.
In gratitude, the IMF mission extended thanks to the Cypriot authorities for their transparent discussions and welcoming hospitality.