Cyprus is expected to return to fiscal surpluses by 2024 while public debt will return to a downward trajectory, following the spike in 2020 during the Covid-19 pandemic, the International Monetary Fund said in its Fiscal Monitor issued on Wednesday.
However, it noted that the Cypriot fiscal outlook is subject to “elevated uncertainty,” as the full consequences of the war in Ukraine are as yet unknown and will vary across countries, adding that deficits are falling globally but are expected to remain above pre-pandemic levels.
“The world is facing renewed uncertainty, as war comes on top of the persistent and still-evolving Covid-19 pandemic,” Vitor Gaspar, head of the IMF’s Fiscal Affairs Department, said in the report’s foreword.
On Cyprus, the IMF projects a return to fiscal surpluses by 2024. After registering a 1.3% of gross domestic product surplus in 2019, it posted a deficit of 5.7% of GDP in 2020, due to the Covid-19 pandemic, and then 1.7% in 2021. The general government general balance is expected to continue in negative territory this year (-1.3%) followed by a small deficit of 0.3% of GDP in 2023 and will return to a surplus of just 0.2% of GDP in 2024.
Cyprus will continue recording increasing fiscal surpluses, reaching 1.2% of GDP by 2027, the IMF added.
According to the Fiscal Monitor, from 0% in 2021 Cyprus’ primary balance (excluding expenditure to service public debt) will return to a minor primary balance of 0.3% this year and remain northbound until the end of 2027.
Furthermore, the IMF’s Fiscal Monitor projects that Cyprus’ public debt will return to a downward trajectory following the spike during the outbreak of the Covid-19 pandemic in 2020, which saw the island’s debt peaking at 115% of GDP.
Following its reduction to 104% in 2021, the IMF estimates that Cypriot public debt will decline to 97.2% of GDP this year and will continue to frop, reaching 72.7% by the end of the forecast horizon in 2027.
The general government’s expenditure is projected to revert to normal following its rise to 45% of GDP in 2020 and 44% in 2021. Public expenditure is projected to decline below 40% by 2027.
Public revenue as a percentage of GDP is also expected to normalize above 40% on the forecast horizon after dropping to 39.3% in 2020, the IMF said.