The Ministry of Finance forecasts a growth rate ranging between 2.9% and 3.1% for the next four years, according to the June edition of the Strategic Framework for Fiscal Policy 2026–2028. Additionally, it projects that public debt will fall to 43.3% by 2028.
The Ministry forecasts that in 2025 the growth rate will be at 3.1% and will remain at the same level in 2026. It is also projected that growth will slow to 3% in 2027 and to 2.9% in 2028.
At the same time, inflation is estimated to stand at 1.9% in 2025 and to remain at 2.1% in the following years up to 2028. Regarding unemployment, the Ministry projects the rate will fall to 4.7% in 2025 and 2026, with a further decline to 4.5% in both 2027 and 2028.
As for public debt, the Ministry expects it to fall below 60% by the end of 2025, reaching 54.7%, and to continue declining, reaching 52.6% in 2026, 48.4% in 2027, and ultimately reaching 43.3% in 2028.
At the same time, it anticipates a fiscal surplus in the coming years—3.5% in 2025 and 3.7% for the years up to 2028. Similarly, a primary surplus is expected at 4.8% in 2025 and 5% in the subsequent years.
According to the Ministry, the fiscal surplus of €1,247 million (3.5% of GDP) is expected for 2025, compared to a surplus of €1,437 million (4.3% of GDP) in 2024. Furthermore, the primary surplus for 2025 is projected at €1,701 million (4.8% of GDP), compared to €1,856 million (5.6% of GDP) in 2024.
Taking into account the projections of the central government’s revenue (2026: €10.23 billion, 2027: €10.76 billion, 2028: €10.98 billion) and the fiscal targets, the Ministry of Finance has set the total expenditure ceiling for the central government. Specifically, it states that the expenditure ceiling is set at €10.54 billion for 2026, €10.73 billion for 2027, and €11.2 billion for 2028.
Risk Analysis
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The Ministry took into account several significant risks when drafting the Medium-Term Fiscal Framework 2026–2028. These include major risks arising from geopolitical developments in Ukraine, following Russia’s invasion, as well as from the war in the Middle East. Additionally, the potential onset of a global trade war is identified as a risk, as “it could affect Cyprus’s economic growth prospects, primarily in an indirect way rather than directly.”
The inclusion of legal and natural persons from Cyprus on the sanctions lists of the US and the UK also continues to impact the country’s services sector.
The Ministry also noted risks arising from the termination of operations at the natural gas terminal in Vasilikos and the ongoing international arbitration in the U.K., which pose dangers such as the possible non-liquidation of the consortium’s guarantees, possible demands for repayment of government-guaranteed loans, and the potential return of subsidy amounts to the European Commission.
According to the Ministry, risks may also stem from the Republic’s participation in the Crete–Cyprus electricity interconnection project (Great Sea Interconnector).
Non-Performing Loans (NPLs) remain a potential source of risk as well. The Ministry says that a renewed increase in NPLs cannot be ruled out, although it notes that substantial progress continues to be made in reducing their levels and that the banking system is supported by a strong capital position and excess liquidity.
An additional potential risk is the strain on public finances from the General Healthcare System, mainly due to deficits of the State Health Services Organization, which may be covered by the state during the first six years of its operation.
Government priorities
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According to the government’s strategic statement, the main objectives are to build a strong, resilient, and competitive economy that supports Health, Education, the Welfare State, and Culture, to enhance security by addressing the impacts of climate change and ensuring energy security, and to establish a lawful, modern, and digital state that serves as a model of transparency and accountability.
It is noted that a primary government priority remains the implementation of reforms supported through the Recovery and Resilience Plan and the “THALIA” Cohesion Policy Programme, as well as the promotion of the green transition and acceleration of digital transformation.
The Ministry also highlights the importance of strengthening the sectors of information and communication technologies, tourism, higher education, agri-tech, renewable energy sources, light industry, and professional services, as these contribute to securing a strong and stable growth trajectory for the country.
Finally, it is noted that priorities to be defined within the framework of the Cypriot EU Presidency are also being taken into account.
Public sector reform
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The Ministry also highlights the course of action for the reform of the civil service. Among other things, it says that a study is being carried out on containing the cost of payroll, legislation is being prepared to implement more flexible forms of work, while efforts are underway increase staff mobility, and place particular emphasis on training and education issues.
CNA/MCH/EPH/2025
ENDS, CYPRUS NEWS AGENCY
