Cyprus’s public debt is expected to fall to around 50% by the end of 2025, significantly ahead of previous estimates targeting a reduction below 60% by end-2026, Finance Minister Makis Keravnos said on Wednesday following a cabinet meeting.
The cabinet discussed the European Union’s assessment report for Cyprus’s 2025 European Semester, which highlighted significant positive characteristics including strong economic growth despite a fragile international environment and high primary surpluses enabling rapid debt reduction.
“The target was to be at 60% by the end of 2026. Today, with the government’s and Finance Ministry’s management, we estimate that debt will reach around 50% from the end of 2025,” Keravnos stated.
The accelerated debt reduction will “free up additional financial capabilities for our country to proceed with increased development spending and for defence,” he said.
EU assessment shows Cyprus no longer classified as imbalanced economy
The EU report indicates that macroeconomic imbalances previously present in the Cypriot economy have receded, particularly regarding external and private debt, with Cyprus no longer characterised as a country with imbalances.
“Economic diversification efforts of our economic model, the report states, are bringing steady results and the country shows improvement in most sustainable development goals as defined by the UN,” Keravnos added.
However, the minister highlighted challenges identified in the assessment, including fiscal trajectory concerns as the spending ceiling for 2025 was exceeded, reaching 6.8% instead of 6%.
“This tells us the report says be careful about this. However, simultaneously it writes that this trend to exceed the ceiling slightly, which we can correct in the next budget of course, is characterised and coexists with high fiscal surpluses and rapid reduction of the debt-to-GDP ratio,” he noted.
Government spending exceeded 2025 ceiling despite strong fiscal surpluses
Regarding questions about state payroll increases affecting spending ceilings, Keravnos characterised the discussion as “excessive.” He stated that in the 2025 budget, the public employees’ payroll was several thousand lower than the previous budget, with positions significantly fewer than all previous budgets submitted to date.
Central government employs 12,300 public servants, a number that has remained stable for years despite EU membership obligations requiring new institutions and committees, the minister explained. Additional sectors absorbing substantial personnel include education and health.
The report identifies other challenges including research and innovation, where Cyprus maintains 0.29% of GDP compared to the EU’s 0.72%, and an underdeveloped capital market creating bank financing dependencies for businesses.
New equity fund and business development organisation planned
To address financing challenges, the government established a €37.5 million Equity Fund, with €30 million from government sources and the remainder from private capital, managed by the European Investment Bank.
“The Fund has already begun its investment activity, providing financing to various companies, mainly in the technology sector, which will help us greatly,” Keravnos said.
The cabinet approved a roadmap for establishing a National Business Development Organisation, with draft legislation entering consultation phases to serve businesses, employment and economic continuity.
Other ongoing initiatives include improving state entities’ governance frameworks based on international standards, with an action plan involving all ministries expected to produce comprehensive proposals for the cabinet by year-end.
The minister noted additional challenges including energy transition dependence on carbon products, waste and water management, and labour market skills gaps, acknowledging government efforts including technical secondary schools beginning implementation this year.
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