Cyprus’ economy is enjoying a period of strong growth and fiscal stability, with key indicators showing resilience and balance, according to Fiscal Council president Michalis Persianis.
In a greeting accompanying the council’s activity report for 2024, the council head highlighted that growth is expected to be maintained at levels around 3 per cent and is based on a broad foundation, with nearly all sectors boosting their activities.
He added that the course of debt, a central issue in the Fiscal Council’s mission, is outside the danger zone, and the downward trend is continuing, with the goal of reaching levels below 60 per cent of GDP being a central scenario for 2025.
Persianis mentioned that state revenues record continuous increases, even exceeding what is expected based on inflation and growth.
He also pointed out that employment remains high and unemployment is at such a point that its further reduction would likely cause concern rather than pleasure, as it would be a danger signal.
“Inflation remains zero, and this is during a period of high growth,” he said.
“Consumption, despite slowing down for the second year and showing lower temperatures, remains an axis of growth,” he added.
Persianis acknowledged that, ostensibly, the Fiscal Council’s mission, “with the above data, is without objective purpose.”
“These, however, are the ‘easy’ times, and that is precisely what makes them dangerous,” he said.
He further stated that, “in our role as an entity whose reason for existence is to contribute to the preservation of the country’s fiscal and macroeconomic health, we believe that this role is not exhausted in the next calendar year, but in the long term“.
“It is exactly there, in the next phase of the economy, that risks have accumulated, with the main assessment being that the pressures will express themselves during the 2027-2028 period,” he continued.
“Mistakes are made in easy periods, and economies are governed by cyclicality,” he warned.
On the negative side, Persianis mentioned that, “we observe that, while inherent risks are accumulating, the external environment is also becoming increasingly unpredictable”.
“The structural changes brought by political and geopolitical turmoil, the rising state debt and the consolidation of cryptocurrencies, the deconstruction of institutions that were bulwarks of stability, and the comparative, at least, retreat of the EU, are changing the rules of the game,” he explained.
“Climate change is now a key parameter in macroscopic models and business strategies, and technological developments are moving faster than the reaction speeds of political and social mechanisms,” he added.
Within this framework, he said, Cyprus has two means to tackle the risks.
Firstly, to keep policy options open for the time when conditions will require fiscal interventions.
This is achieved, primarily, through the creation of fiscal space that allows measures to be taken “at that time.”
“If the continuing reduction of the debt constitutes the cutting edge in this direction, then the better structuring of state expenditure constitutes its handle,” he stated.
“And, the Fiscal Council continues to be concerned about the fact that inflexible expenses absorb most of the fiscal space, and do not leave room for manoeuvre,” he added.
“Thus, combined with the fact that social spending is, as a rule, indiscriminate, governments are trapped in pro-cyclical policies,” he explained.
The second option, he continued, is the drastic preparation against those risks that are already visible.
“Climate change is no longer a scenario but has begun to be experienced,” he said.
Natural disasters, the need for water management and the increase in electricity demand, are already recording intensifying trends, while all models predict an acceleration of the phenomena,” he added.
What is more, Persianis stressed that “the inadequacy of infrastructures, with the most painful being water, public transport, and energy infrastructure, are approaching the limits of a crisis and deprive the executive power of the required options”.
“Serious increases in expenditure will be required for these, and the continuing delay concerns us,” he warned.
He pointed out that structural weaknesses related to public finances are not felt at the present stage.
These include demographic pressures and increasing liabilities, as well as the intensifying deficits of the central government, which lead to unfavourable policy choices but are disguised behind the surpluses of the general government.
“The inability of the political leadership to make decisions based on data and the non-existence of strategies, including for Foreign Direct Investment, is another serious weakness which leads, as a rule, to fragmented, costly, and ineffective solutions,” he stated.
In terms of more positive news, Persianis highlighted that “the solutions are not particularly difficult and do not need to be provided immediately and directly”.
“The country can and does have both the tools and the fiscal and macroeconomic latitude to take them, if they are sought,” he stated.
“The window of opportunity for seeking medium and long-term solutions, however, is not large,” he added.
“The successful course of recent years, which is indeed continuing, constitutes an excellent opportunity that must not be lost,” Persianis continued. “The fact that this opportunity arises at a time when social, technological, and political conditions are supportive of structural changes, enhances the fiscal and macroeconomic dynamic.”
Persianis also stated that the Fiscal Council continues to upgrade and has recorded a serious strengthening of its capacities, but is not yet at the level required by its ambition.
“The internal structuring and appropriate staffing have not been completed, while the development of an ‘arsenal’, with models and more sophisticated quantitative analysis, are in progress (and within schedules) but are not complete, with external evaluation,” he said.
“This course is of crucial importance, as the mission requires greater analytical intensity, and a medium- to long-term approach, despite the myopic approaches that are easier but have allowed the accumulation of risks in the coming years,” he added.
It should be mentioned that the Fiscal Council’s activity report reflects its practical actions and developments of recent years.
“Behind these actions, strategies, and upgrades, the essence is for the council to be able to identify risks with a greater time horizon,” Persianis said.
“Today’s good era makes the role of institutions like the Fiscal Council more important, as the ‘good times’ are, on the one hand, the appropriate time for the correction of structural imbalances and preparation for the challenges that are gathering,” he explained.
“On the other hand, they are the point in time when, historically, the greatest mistakes are also committed,” he added.
The activity report also mentioned that the Fiscal Council is undertaking the organisation of a thematic conference of the European Network of Independent Fiscal Institutions (EU NIFI) in early 2026, during the period when the Republic of Cyprus will assume the Presidency of the European Commission.
The council said that EU NIFI Conferences are a significant event of the network, the organisation of which is undertaken each time by a national independent fiscal institution of an EU member state participating in the network.
The national IFIs of member states participating in the network (31 IFIs from 27 states), representatives of EU institutions, as well as other invitees, are invited to participate in the conference.
During this event, issues related to the Fiscal Framework of the EU Member States are discussed, aiming to enhance cooperation and coordination of the work of the IFIs of the member states.
