Cyprus’s public debt is now expected to drop to approximately 50% of its Gross Domestic Product by the end of 2025, a forecast that significantly surpasses previous government targets. Finance Minister Makis Keravnos announced the revised projection on Wednesday, noting that the rapid debt reduction will free up funds for development and defence spending.
European Commission’s Positive Assessment
The announcement followed a Cabinet meeting where the European Commission’s assessment report on Cyprus under the 2025 European Semester was discussed. According to Keravnos, the report highlighted several positive characteristics of the Cypriot economy.
Key findings include:
- Strong economic growth despite a fragile international environment.
- High primary surpluses that are being used effectively for rapid debt reduction.
- Easing of macroeconomic imbalances, leading to Cyprus no longer being classified as a country with such issues.
The report also noted that the country’s efforts to diversify its economic model are delivering steady results.
Challenges Highlighted by the EU
Despite the positive overview, the Commission’s report also identified several challenges that Cyprus must address. A key concern was a “challenge in fiscal trajectory,” as the government’s expenditure ceiling for 2025 was exceeded. However, Keravnos noted that this coexists with high fiscal surpluses.
Other significant challenges mentioned include:
- Underfunding of Research and Innovation, with spending at just 0.29% of GDP compared to the EU average of 0.72%.
- An underdeveloped capital market, which forces companies to rely heavily on bank financing.
- A slow energy transition, with continued dependence on carbon-based fuels.
- A skills gap between labor market needs and the available workforce.
Government Initiatives to Address Shortcomings
In response to the identified weaknesses, the Minister outlined several government initiatives already underway.
To address the underdeveloped capital market, the government has established the Cyprus Equity Fund, amounting to €37.5 million, which is managed by the European Investment Bank and has already begun financing technology companies. A National Business Development Organisation is also being created.
To tackle the skills gap, Keravnos pointed to the introduction of technical high schools, which are being implemented this year. He added that efforts are also underway to reduce bureaucracy and improve the governance of state-owned entities.
Source: stockwatch.com.cy