IMF: Cyprus budget to continue upward

Cyprus’ public finances will return to surpluses in 2023, which will continue until 2027, the International Monetary Fund said in its Fiscal Monitor 2022 issued on Wednesday.

The IMF projects that following the deficits recorded in the Covid-19 pandemic and the streamlining of 2021 and 2022, Cyprus’ public balance will register a surplus of 0.9% of gross domestic product next year. The budget surplus will increase 1.3% in 2024 followed by a surplus of 1.6% in 2025, before rising to 1.7% in 2026 and 2027.

According to the Fiscal Monitor, from a surplus of 0.1% of GDP in 2021, Cyprus’ primary balance (excluding debt servicing expenditure) will continue its upward trajectory. In 2022 the primary surplus will reach 1.2% of GDP and accelerate to 2.3% in 2023, 2.6% in 2024, 2.8% in 2025 and 2.7% of GDP for the years 2026 and 2027.

The IMF also projects that following the high of 115% of GDP in 2020 due to large debt issuances during the Covid-19 pandemic and the reduction to 103.9% in 2021, Cyprus’ gross public debt will continue declining to 93.6% this year and will drop further to 87.5% in 2023. Cyprus’ gross debt will decline to 80.2% in 2024, and 76% in 2025, and will drop further to 71% and 66.2% in 2026 and 2027 respectively.

The report added that Cyprus’ revenue as a percentage of GDP will stabilize at around 42%. Following the rise to 42.4% of GDP in 2021 (from 39.3% in 2020) Cyprus’ revenue will reach 41.9% in 2022 and 2023. Public revenue will reach 42.2% of GDP in 2024 and amount to 41.8%, 41.1% and 40.7% in 2025, 2026 and 2027 respectively.

Public expenditure as a percentage of GDP will reach 42.4% in 2022 (after 45% and 44.1% in 2020 and 2021 respectively) and will decline to 41% in 2023. Revenue as a percentage of GDP will continue to decline, pushed by the GDP increase in the following years. Public revenue will amount to 40.9% of GDP in 2024 and 40.2% in 2025, and 39.4% and 39% in 2026 and 2027 respectively.

Titled “Helping People Bounce Back,” the report said that as evident during the pandemic and the global financial crisis, fiscal policy can be active and powerful if resources are available. “Building fiscal buffers in normal times is a prerequisite for policies to respond flexibly during crises without jeopardizing access to financing,” it added.