(Commonwealth_ Cyprus) The Republic of Cyprus is assured of securing a new loan in 2025 to enable the settlement of the first installment of a €6.3 billion loan provided by the European Stability Mechanism (ESM). At a recent House Finance Committee meeting on the 2025 state budget, Phaedon Kalozois, the Director of the Public Debt Management Office, revealed this information.
In response to an inquiry from MP Elias Myrianthous regarding the strategy for covering the €1.3 billion due in 2025—the first installment of the troika loan—Kalozois indicated that new borrowing would likely be necessary rather than utilizing existing reserves. The ESM had granted €6.3 billion as part of a larger €10 billion financial assistance package for Cyprus to support the nation’s economic recovery. Notably, Cyprus opted not to utilize the remaining €2.7 billion of this package, assessing that such funds would not be required for its financial strategy.
The €6.3 billion loan, disbursed in nine installments between May 2013 and October 2015, is scheduled for repayment from 2025 to 2031, with an average repayment period of approximately 15 years. Kalozois further explained that the timing of the first ESM repayment coincides with the maturity of a €1 billion European bond issued in 2015, which carries an interest rate of 4.25%. He emphasized that this alignment could benefit Cyprus, given that current borrowing rates are significantly lower. Consequently, he projected the necessity for a new loan to cover this maturing bond. Importantly, Kalozois clarified that the €350 million repayment due under the ESM loan, with the total outstanding debt to the ESM amounting to €6.3 billion, would not require additional borrowing.
During the same finance committee meeting, Finance Minister Makis Keravnos reported a noteworthy decrease in public debt relative to GDP, which is expected to decline by 8.5 percentage points in 2024. The government is targeting a reduction of public debt to 60% of GDP, down from 68.9% in 2024. The 2025 budget projections predict a decrease of 18.6% in the costs associated with public debt servicing, including interest and loan repayments, to €2.751 billion in 2025, from €3.379 billion in 2024.
However, Minister Keravnos cautioned that Cyprus is grappling with both internal and external economic pressures. While the government forecasts positive GDP growth and a reduction in inflation, challenges persist, including high levels of non-performing loans, pension fund deficits, and potential EU penalties for environmental non-compliance. Additional financial risks are associated with the Vasiliko gas terminal project. He also highlighted concerns regarding migration costs and the financial burdens on the health sector, which complicate the economic outlook further.
In summary, as Cyprus navigates the complexities of managing its debt obligations and economic challenges, the forthcoming loan in 2025 will play a crucial role in ensuring financial stability and facilitating the country’s long-term recovery strategy.
