11.10.2023
The International Monetary Fund forecasts a high primary and significant budget surplus, as well as a reduction in Cyprus’ public debt below the Maastricht Treaty limit (60% of GDP). The IMF today published “ Fiscal Monitor ” is a document with estimates of the budgetary indicators of states.
Regarding Cyprus’ fiscal balance, the IMF estimates that Cyprus will post surpluses throughout the forecast horizon until 2028, averaging almost 1.4%.
In particular, for this year the IMF forecasts a surplus of 1.9% of GDP, 1.7% in 2024 and 1.5% in 2025. For 2026, 2027 and 2028, the surplus is estimated at 1.3%, 1.0% and 0.9%, respectively.
The IMF records a high primary surplus (excluding debt service costs) for Cyprus throughout the forecast horizon. The primary balance is expected to be 3.2% of GDP this year, 3.0% in 2024 and fall to 2.7% of GDP in 2025. According to IMF estimates, for 2026-2028 the primary surplus will be set at 2.5%. , 2.2% and 2.2% respectively.
As for government revenues in terms of GDP, the IMF estimates that after 42% in 2022 they will reach 40.5% this year, 40.3% in 2024 and 40% in 2025, and in 2026, 2027 and in 2028 they will be 39.4%. 39.2% and 39.1% of GDP, respectively.
According to Fiscal Monitor , government spending, after 39.8% last year, will fall to 38.6% this year, increase slightly to 38.7% in 2024 and fall to 38.5% in 2025. They are estimated to stabilize at 38.2% between 2026 and 2028.
Cyprus public debt will fall below 60% in 2027
As for gross government debt, the IMF estimates that it will amount to 78.6% of GDP this year, falling to 70.9% in 2024 and 66.8% in 2025. According to Fiscal Monitor , Cyprus’ gross debt will fall to 61.7% in 2026 and then fall below the 60% threshold to 58.4% in 2027 and 55.1% in 2028.
It is noted that this year’s estimates are more optimistic than last year’s Fiscal Outlook , apparently due to an increase in nominal GDP due to high inflation. Notably, last year’s budget forecast assumed that Cyprus’ debt would fall to 66.2% at the end of the period. At the same time, gross financing requirements for 2023 remained unchanged at 8.1% of GDP.
Scary assumptions about climate change
This year « Fiscal Monitor ” is entitled “Climate Crossroads, Fiscal Policy in a Warming World.”
In particular, in the preface to the report Vitor Gaspard , the IMF’s director of fiscal affairs, notes that all countries are finding it difficult to balance their accounts due to rising demand for government spending, rising debt, rising interest rates and “political red lines for taxation.”
However, the IMF is studying the financial implications of a green transition, noting that increasing the existing set of policies aimed at achieving net zero emissions – that is, increasing subsidies and other forms of government spending – will increase debt. The private sector plays a critical role in a successful transition to a green economy, says Mr. Gaspard , noting that public policies must provide a framework that encourages private sector participation in investing in and financing the transition to a green economy.
Finally, it notes that public support will be needed to mitigate the “inevitably costly changes” that will be required of vulnerable households, workers, communities and businesses.
