Siena:The Cypriot economy is projected to grow by 3.1% in 2026, with future growth rates maintaining around 3% from 2027 to 2029, Finance Minister Makis Keravnos announced during the presentation of the 2027 state budget to the House Finance Committee. This economic outlook remains positive despite global challenges such as the Russia-Ukraine war and ongoing conflicts in the Middle East.

According to Cyprus News Agency, the Finance Minister highlighted that inflation is expected to decrease from 4% in 2026 to 2.5% in 2027, further dropping to 2% in 2028 and 2029. Unemployment is forecasted at 3.8%. The fiscal balance is anticipated to stay in surplus, improving from 2.7% of GDP in 2026 to 3.9% in 2027. Public debt is projected to decline to 46.6% of GDP in 2027, continuing a downward trend.

The banking sector is also showing signs of strength, with deposits increasing due to inflows from households and businesses. The sector maintains a strong capital base and high liquidity levels, while loans have been on the rise since 2023.

Keravnos described the 2027 budget as focused on social support, with increased spending on social policy measures to aid households and businesses amid the energy crisis caused by escalating international conflicts. Cyprus is engaging with the European Commission to explore fiscal flexibility options to address these challenges.

Total budget expenditure for 2027 is estimated at £14.406 billion. The Minister announced a net reduction of 51 public service posts as part of continued efforts to streamline government operations. Development projects include significant infrastructure investments and defense spending, alongside provisions for local government and the Solidarity Fund.

Fiscal risks identified by Keravnos include the Vasiliko natural gas terminal and potential non-recovery of non-performing loans. Externally, geopolitical tensions and climate change pose threats to public finances, necessitating investments in preventive infrastructure.