Competitiveness Council urges fiscal prudence amid global risks

Cyprus must maintain strict fiscal discipline and focus on strategic investments to preserve economic resilience in an increasingly uncertain global environment, the Cyprus Economy and Competitiveness Council has warned.

The advisory Council underlined that rising trade tensions and geopolitical instability were contributing to heightened economic risks that could slow the country’s growth trajectory.

In a written statement, the Council noted that while the current developments may not have immediate or severe consequences for the Cypriot economy, they pose serious threats to long-term stability. It pointed to recent assessments by the International Monetary Fund (IMF), which warned that increased trade barriers and global policy uncertainty could weigh on both short- and long-term economic growth. The Economic Research Centre of the University of Cyprus (CypERC) has also highlighted concerns related to growth and fiscal sustainability.

The Economy and Competitiveness Council stressed that, under these conditions, Cyprus must be cautious about expanding inflexible public expenditures, such as permanent wage commitments or large-scale infrastructure projects. These, it warned, could undermine the state’s ability to address pressing challenges like water scarcity, demographic shifts, and the urgent transitions needed in energy and technology. The Council also cautioned that broad, un-targeted tax cuts could undermine fiscal flexibility and limit the government’s ability to respond effectively to unforeseen shocks.

For Cyprus, the IMF has revised its 2025 GDP growth forecast from 3.1% to 2.5%, with growth expected to reach 2.7% in 2026. Meanwhile, the CypERC estimates that Cyprus’s growth will slow from 3.4% in 2024 to 2.8% in 2025, before rebounding to 3.2% in 2026.

The Council acknowledged the country’s recent fiscal achievements, including significant reductions in public debt as a share of GDP and the maintenance of budget surpluses. However, it argued that the current global economic context calls for heightened prudence in managing public finances.

Recommendations for fiscal discipline and strategic investments

The Economy and Competitiveness Council highlights the need to reduce public debt and create fiscal space as essential tools for enabling effective government intervention during future economic crises.

The Council places particular emphasis on strengthening economic resilience through policies that promote the diversification of the productive base and reduce reliance on a limited number of external partners and products.

It also advocates prioritizing strategic investments, especially in the energy and technology sectors, aiming to enhance competitiveness and ensure long-term sustainability.

Continuous monitoring of economic indicators and the use of expert analyses from institutions such as the International Monetary Fund (IMF) and the Cyprus Investment Promotion Agency (CIPA) are also deemed crucial, according to the Council. This would allow for timely corrective action and the development of strategic response plans when needed.

Moreover, it highlights the importance of active international cooperation and Cyprus’ participation in global initiatives that promote stability and predictability in the international trade environment.

Finally, the Council notes that Cyprus is at a pivotal moment, where prudent fiscal management is vital to navigating global economic uncertainties. “By adopting sound fiscal practices and focusing on strategic investment, the country can secure long-term stability and growth,” it points out.