According to the European Commission's post-programme surveillance reports for Cyprus, Ireland, Greece, Spain and Portugal, "all five Member States maintain their capacity to service their debt," with Cyprus showing particularly positive indicators.
The European Commission published its post-programme surveillance reports on the five countries as part of the European Semester.
In this assessment, the Commission evaluated the economic, fiscal, and financial situation of the countries that had participated in financial assistance programs, focusing particularly on their debt repayment capacity.
Specifically, the macroeconomic environment in Cyprus continues to be positive, with real GDP growing by 3.6% in the first half of 2025, supported by "strong, though moderating, aggregate consumption" (+3.4%) and investment growth of 10.4%. Service exports, especially in the ICT sector, remained robust, while tourism recorded "record arrivals." The labor market remains favorable, with employment increasing by 1.7% and unemployment falling to a historic low of 4.6%. Inflation declined significantly in the second quarter of 2025, although core inflation remains elevated due to strong demand in the services sector.
Cyprus’s fiscal position is characterised by strong surpluses, which rose to 4.1% of GDP in 2024 from 1.7% in 2023, and are expected to remain substantial in the coming years (3.3% in 2025, 3.0% in 2026, and 3.2% in 2027). Revenues are growing dynamically, while expenditures are carefully controlled, contributing to the reduction of public debt, which is projected to fall below 60% of GDP by the end of 2025.
According to the report, Cyprus’s financial sector remains resilient, with banks showing "strong profitability, high capital adequacy, and ample liquidity." The common equity tier 1 (CET1) ratio stands at 26.3%, the highest in the EU, providing a significant buffer. Non-performing loans continue to decrease, although challenges remain, particularly among smaller banks.
Cyprus maintains low financing needs, with estimated gross financing needs of approximately €1 billion in 2025 (3.0% of GDP) and €0.94 billion in 2026 (2.6% of GDP). Liquidity remains strong, with cash reserves of €3.9 billion (about 11% of GDP) as of the end of September 2025, covering 1.3 times the financing needs for the next 12 months.
Regarding public debt and its repayment, the report notes that Cyprus "consistently maintains the capacity to service its debt," supported by several factors ensuring long-term sustainability. Ongoing fiscal discipline and substantial surpluses allow for the reduction of the debt-to-GDP ratio, expected to fall below 60% by the end of 2025 and to continue declining through 2028.
The debt maturity profile remains favorable, with an average maturity of total debt of 6.4 years and an average maturity of marketable debt of 7.4 years (data as of August 2025). Approximately 34.1% of debt is based on variable interest rates, mainly stemming from European Stability Mechanism (ESM) loans, while 27.4% is held by the European Central Bank. All outstanding debt is denominated in euros, eliminating foreign exchange risk.
The first loan repayment to the ESM, amounting to €350 million, is scheduled for December 2025, followed by estimated annual repayments of about €1 billion during 2026-2031.
Cyprus’s positive credit ratings from international agencies (DBRS, Fitch, Moody’s, S&P) underscore the "resilience of the economy and the steady capacity to service debt." The 2024 Debt Sustainability Monitor rates the risks to Cyprus’s fiscal sustainability as "medium in the medium term, but low in the short and long term," owing to long debt maturities, high cash buffers, low gross financing needs, and the ongoing debt reduction.
Overall, according to the report, Cyprus presents a stable and sustainable fiscal and economic situation, supported by strong growth, fiscal discipline, and a resilient financial sector, ensuring its ability to service public debt and strengthening its position in international markets.
(Source: CNA)
