Cyprus: New Stability Programme Signals Fiscal Policy Continuity

The new government has presented its first official medium-term budgetary targets since taking office. While the election of President Nikos Christodoulides in February 2023 marked a shift in Cypriot politics as his candidacy was not backed by either of the two largest political parties DISY and AKEL, the medium-term budgetary targets signal fiscal policy continuity. Similar to the projections of the previous government's Draft Budget 2023 released in October 2022, the Stability Programme 2023-2026, published on 3 May 2023, forecasts recurring budgetary surpluses and, as a result, a marked reduction in the high public debt burden over the next few years.

Key Highlights

• The Stability Programme targets an average general government budget surplus of 2.3% during 2023-2026.
• Favourable fiscal projections are based on the assumption that public tax revenues will continue to be bolstered largely by strong economic growth dynamics.
• While we expect economic growth to remain strong, the economic and the fiscal outlooks are exposed to significant downside risks.

“Cyprus is one of the very few Euro Area countries which currently targets recurring fiscal surpluses over the medium-term,” said Yesenn El-Radhi, Vice President of the Sovereign Group at DBRS Morningstar. “These favourable fiscal projections are not based on expenditure cuts but rather on the expectation that strong economic tailwinds will continue to bolster public tax revenues. Therefore, a continuation of favourable economic growth dynamics is essential for achieving these fiscal targets over the next years.”