Nicosia: Despite higher energy prices and a decline in tourism arrivals, Cyprus’ economy shows resilience with robust growth and strong fundamentals. This is according to the International Monetary Fund’s (IMF) 2026 Article IV Consultation with Cyprus, which was warmly received by the Cypriot authorities.
According to Cyprus News Agency, the Ministry of Finance announced the IMF’s conclusions, emphasizing the resilience of the economy amidst external challenges. The IMF’s report highlights that the strong fiscal performance and decreasing public debt provide room for gradual fiscal easing, focusing on high-quality investments and efficiency gains. The report suggests that maintaining financial sector soundness and supporting credit deepening are crucial.
The IMF’s assessment identifies necessary reforms to sustain growth, including boosting productivity through an efficient judiciary, a skilled workforce, digital technology adoption, and energy sector reforms. The IMF Executive Board commended Cyprus for its strong macroeconomic performance, fiscal surpluses, and declining public debt, despite a challenging external environment. However, they cautioned about near-term risks such as geopolitical tensions and energy prices, urging continued structural reforms for long-term growth.
The Directors praised Cyprus’ fiscal performance, recommending gradual fiscal easing to prevent overheating while maintaining buffers for ageing, defence, and infrastructure spending. They emphasized improving spending efficiency, prioritizing public investment, and maintaining public wage discipline. The recent tax reform and proposals to build financial assets in the social security fund were also welcomed.
The Ministry highlighted the banking sector’s soundness with strong capital, liquidity buffers, and improving asset quality. However, it acknowledged concerns over real estate exposure and legacy non-performing loans (NPLs) outside the banking sector. The IMF stressed the need for an effective foreclosure framework, strengthened insolvency processes, and improved judicial efficiency to resolve distressed assets and deepen credit markets.
The Directors also emphasized the importance of structural reforms to enhance productivity and support long-term growth. Priorities include addressing skill mismatches, strengthening human capital, improving the business environment, and advancing judicial efficiency. Energy sector reform is deemed critical for cost reduction, energy security, and the green transition, with the EU-funded Recovery and Resilience Facility’s timely implementation being crucial.
The Ministry of Finance welcomed the IMF’s observations and recommendations, agreeing with the assessment of Cyprus’ economic resilience and exceptional fiscal performance. It acknowledged the necessity for efficient fiscal policy, growth-enhancing investments, and addressing long-term challenges, aligning with the European Economic Governance Framework’s expenditure benchmark.