On Wednesday, 17 June ’26, the executive board of the International Monetary Fund (IMF) completed the Article IV consultation for Cyprus. The authorities had agreed to publish the staff report prepared for this consultation.
Cyprus’s economy continues to perform strongly. ’25 growth was among the highest in the EU. Robust domestic demand and strong services exports, particularly in ICT and tourism, supported this growth. Inflation declined last year, reflecting favourable energy and goods pricing developments. However, inflation had begun to pick up as higher energy prices linked to the war in the Middle East took effect. Tourism’s also reflecting signs of softening. Fiscal performance has remained strong. It sustained surpluses; besides, public debt declined before 60% of GDP. The financial sector is sound, supported by strong capital, liquidity buffers, and improving asset quality.
Growth is expected to be moderate this year. This slowdown is due to higher energy prices, besides geopolitical tensions, which tend to weigh on real incomes and tourism as well as confidence. Inflation is projected to rise in the near term before easing. Risks are tilted to the downside. The downside is notably from a more prolonged war in the Middle East. Additionally, tighter global financial conditions and weaker external demand are contributing factors. Medium-term prospects are more balanced. They are supported by strong fundamentals besides reform momentum.
Executive Board Assessment
Executive directors commended Cyprus’s sustained strong macroeconomic performance as well as resilience. This is with sustained growth and fiscal surpluses besides declining public debt despite a challenging external environment. However, directors cautioned that near-term risks are titled to the downside. This includes geopolitical tensions besides higher energy prices as well, so structural vulnerabilities persist. They encouraged the authorities to preserve fiscal sustainability besides pressing ahead with structural reforms in boosting productivity as well as supporting long-term growth.
