The fact that the autumn package of measures adopted on 25 November, by the European Commission as part of the European Semester, clearly confirms the resilience of the Cypriot economy, which is reflected in strong growth momentum and stable fiscal performance, is welcomed by the Government, according to a Ministry of Finance statement.
At the same time, the Ministry of Finance, remaining faithful to its policy of fiscal discipline and taking into account the European Commission's references to the rate of growth of public expenditure, as it emphasises, "will continue and intensify its efforts to rationalise public spending."
"Cyprus is among the 12 eurozone countries whose draft budgets for 2026 have been assessed by the EU as compliant with the European fiscal framework, although a deviation from Cyprus' commitment to limit the increase of net primary expenditure is expected," the Ministry of Finance said in the statement.
It is noted that, in the context of the Republic of Cyprus' commitments under the new European Economic Governance Framework, which entered into force on April 30, 2024, the annual percentage change in general government net primary expenditure was set at 6% for 2025 and 5% for 2026.
It is added, however, that according to European Commission forecasts, a deviation from the initial targets set for both 2025 and 2026 is expected due to a number of measures taken after the submission of the National Medium-Term Fiscal and Structural Plan in October 2024, including the National Solidarity Fund Replenishment Plan, the relief measures in the context of the wildfire in the mountainous area of Limassol at the end of July 2025, as well as the imposition of a zero VAT rate on a number of basic goods and the reduction of the VAT rate from 19% to 9% on electricity consumption until the end of 2026.
Citing the EU assessment, the Ministry of Finance adds that the reported deviation from the reference path of net primary expenditure has not slowed down the substantive objective of reducing public debt as a GDP percentage, which, according to the latest Ministry’s estimates, is expected to fall to 41.8% in 2028.
Furthermore, it is noted that the autumn package documents recognise that public debt as a percentage of GDP is expected to fall below the 60% threshold at the end of 2025 and continue its downward trend in the coming years.
It is added that the EU emphasises that Cyprus maintains its ability to service its public debt.
According to the Ministry of Finance, "the more positive than initially expected reduction in public debt as a percentage of GDP during the period 2025-2028, despite the apparent divergence in the rate of increase in net primary expenditure, is due to public revenue increase, the maintenance of high fiscal surpluses and growth rates, as well as the revision of GDP by the Statistical Service of the Republic of Cyprus in October 2025."
Regarding the macroeconomic imbalances procedure, the Ministry of Finance states that the EU continues to classify Cyprus as having "macroeconomic imbalances," recognising the significant reduction in non-performing loan ratios and the steady decline in public and private debt, supported by both nominal GDP growth, primary fiscal surpluses and the deleveraging of households and businesses.
In addition, it is stated that the European Commission stresses that the Cypriot financial sector remains strong, with banks maintaining strong profitability and further strengthening their already strong capital positions amid high liquidity.
"Regarding the current account deficit, the EU notes that the deficit is expected to decline to some extent but remain high, underscoring the need to reduce it," it is further noted.
(Source: CNA)
