In a staff concluding statement after its Article IV mission to Cyprus, the International Monetary Fund said the economy remained resilient, with growth among the highest in the European Union in 2025 and expected to stay robust at around 2.5 percent in 2026, while average inflation is projected at around 3.5 percent. The main policy message was that any fiscal loosening should be gradual and directed toward growth-enhancing investment, while Cyprus should avoid broad tax cuts or other price-based measures to cushion near-term inflation and should not weaken the foreclosure framework. Public debt has fallen to 55 percent of GDP, and staff said the medium-term primary balance should remain at or above the debt-stabilizing level of about negative 0.5 percent of GDP. Priority should go to public investment in energy, climate adaptation, digital infrastructure, and sustainable transport, with targeted temporary transfers preferred over zero or reduced value added tax rates, excise duty cuts, and similar measures. Staff also said public wage increases should not exceed the current COLA index. In the financial sector, banks were assessed as resilient, with strong capital and liquidity buffers and improving asset quality, and the increase in the countercyclical capital buffer to 1.5 percent effective January 2026 was judged appropriate. At the same time, weak credit intermediation remains a concern, and proposed foreclosure changes that would slow resolution were flagged as potentially raising credit risk and reducing access to finance. The statement also called for further reforms in skills, innovation, judicial efficiency, and the energy sector, including electricity interconnection, liquefied natural gas infrastructure, and the competitive electricity market framework. Progress on the Recovery and Resilience Plan has accelerated, but all remaining milestones and targets must be met by August 2026 to secure full disbursements by end-2026. Subject to management approval, IMF staff will now prepare a report for Executive Board discussion and decision.
International Monetary Fund 2026-05-04
International Monetary Fund staff sees Cyprus growth around 2.5 percent and urges gradual fiscal easing while resisting foreclosure changes
The IMF’s Article IV staff concluding statement on Cyprus found the economy resilient, with robust growth and moderate inflation. It advised that any fiscal loosening be gradual, focused on growth-enhancing investment, and avoid broad tax cuts or weakening the foreclosure framework. Staff urged keeping the medium-term primary balance at or above the debt-stabilizing level, prioritizing targeted transfers over broad price-based measures, and limiting public wage increases to the COLA index. Banks were deemed resilient, and staff supported raising the countercyclical capital buffer to 1.5 percent from January 2026. The statement also called for further structural reforms in skills, innovation, judicial efficiency, and the energy sector.