The International Monetary Fund's Executive Board has completed its Article IV consultation for Cyprus, concluding that the economy remains strong but faces a softer near-term outlook. The Board pointed to 2025 growth among the highest in the European Union, continued fiscal surpluses, public debt falling below 60 percent of gross domestic product and a sound financial sector with strong capital and liquidity buffers. It also noted that growth is expected to moderate as higher energy prices and geopolitical tensions weigh on real incomes, tourism and confidence, while inflation is projected to rise in the near term before easing. Directors said risks are tilted to the downside, particularly from a more prolonged war in the Middle East, tighter global financial conditions and weaker external demand. They urged the authorities to preserve fiscal sustainability, with any fiscal easing kept gradual and well calibrated, while maintaining buffers for ageing-related spending, defense and infrastructure needs. Priorities included improving spending and tax efficiency, protecting high-quality public investment, keeping public wage growth disciplined and ensuring household support measures are temporary and targeted. On financial stability, Directors said banks remain sound but warned that real estate exposures and remaining legacy nonperforming loans outside the banking sector require vigilance. They called for an effective foreclosure framework, stronger insolvency processes, better judicial efficiency, stronger risk monitoring and further progress in anti-money laundering and countering the financing of terrorism supervision. Structural reform priorities included skills and human capital, artificial intelligence readiness, the business environment, judicial efficiency, energy sector reform and timely implementation of measures under the European Union-funded Recovery and Resilience Facility. The authorities have consented to publication of the staff report, which the IMF said will be published shortly on its Cyprus page.
International Monetary Fund2026-06-23
International Monetary Fund completes Cyprus Article IV consultation and urges fiscal discipline as growth risks rise
The International Monetary Fund completed its Article IV consultation for Cyprus, saying the economy remains strong with fiscal surpluses, lower public debt and a sound banking sector, but that growth is expected to slow as energy prices and geopolitical tensions weigh on activity. Directors urged gradual fiscal easing, continued action on distressed assets and AML/CFT supervision, and faster structural reforms including energy, skills and judicial reforms. The staff report will be published shortly.