Private debt still a threat in Cyprus
The European Commission has reiterated warnings concerning the significant challenges posed to the Cypriot economy from private debt, as it has done before in regular post-program or post-memorandum reports.
In its latest report, the Commission underscores that while the macro-economic environment remains stable, the private sector is still under pressure due to an exceptionally high level of debt. As of March 2023, the debt-to-GDP ratio is 163%. This is a decrease from 187% at the end of 2021, though that is primarily attributed to GDP growth rather than a substantial decrease in debt.
The impact of high private debt is more pronounced during periods like the present, with challenges in servicing for both households and businesses due to increasing interest rates and high inflation. According to the central bank, loans to households with fixed interest rates are below 10% and for businesses below 5%.
Acknowledging the private sector’s creation of a savings cushion during the pandemic, the Commission, however, stresses that bad loans transferred outside the banking system to loan acquisition companies still weigh on the economy via private sector debt.
