The International Monetary Fund's 2026 Article IV Consultation commends Cyprus’ robust growth and fiscal surpluses, while urging continued judicial and energy reforms to secure long-term productivity.

Macroeconomic Resilience and Fiscal Performance

Despite higher energy prices and lower tourism arrivals, Cyprus’ economy remains resilient, with strong growth and fundamentals, according to the conclusions of the International Monetary Fund’s (IMF) 2026 Article IV Consultation with Cyprus.

Cyprus’ Ministry of Finance, in a statement announcing the conclusion of the IMF 2026 Article IV with the country, welcomes the IMF’s observations and recommendations.

The Ministry notes that, under Article IV of the IMF’s Articles of Agreement, the Fund holds bilateral consultations with its member countries. As part of the 2026 Article IV Consultation with Cyprus and following a mission by an IMF staff team to Cyprus between 22 April and 4 May 2026, the IMF has published a country report.

According to the Ministry, the IMF’s conclusions state that, despite higher energy prices and lower tourism arrivals, Cyprus’ economy remains resilient, with strong growth and fundamentals.

“Strong fiscal performance and falling public debt create room for a gradual and growth-friendly fiscal easing, focused on high-quality investment and efficiency gains”, the IMF said, adding that financial sector soundness should be preserved and credit deepening supported.

The report further notes that sustaining strong growth requires reforms to boost productivity and investment, including through a more efficient judiciary, a better-skilled workforce, wider use of digital technologies, and progress on energy sector reforms.

According to the Ministry, in their assessment, IMF Executive Board “commended” Cyprus’ continued strong macroeconomic performance and resilience, with sustained growth, fiscal surpluses, and declining public debt despite a challenging external environment. Directors cautioned however that near-term risks are tilted to the downside - including from geopolitical tensions and higher energy prices - and that structural vulnerabilities persist. They encouraged the authorities to preserve fiscal sustainability and to press ahead with structural reforms to boost productivity and support long-term growth.

Guidelines for Spending and Tax Reform

Directors also commended the authorities’ strong fiscal performance, the Ministry notes. They agreed that, as policy space expands, any fiscal easing should be gradual and well-calibrated to avoid overheating, while preserving buffers for rising spending pressures related to ageing, defence, and infrastructure needs.

They stressed the importance of improving the efficiency of spending and taxation, prioritising high-quality public investment and maintaining discipline in public wage growth, while that measures to support households should be temporary and well targeted. Directors welcomed the recent comprehensive tax reform and the proposal to build financial assets in the social security fund, the Finance Ministry said.

Financial Stability and Foreclosure Safeguards

The Ministry further said that the Directors agreed that the banking sector remains sound, supported by strong capital and liquidity buffers and improving asset quality. At the same time, it adds, they considered that significant exposure to real estate and remaining legacy NPLs outside the banking sector warrant continued vigilance. “Noting that credit intermediation remains subdued, Directors stressed the need to preserve an effective foreclosure framework, strengthen insolvency processes, and improve judicial efficiency to support the resolution of distressed assets, deepen credit markets, and foster investment”, it said, adding that they also emphasized the importance of strengthening risk monitoring frameworks and advancing AML/CFT supervision.

Priorities for Structural Reform

The Directors also agree that continued implementation of structural reforms is key to raising productivity and supporting long-term growth. Priorities, they note, include addressing skills mismatches, strengthening human capital and AI readiness, improving the business environment, and enhancing judicial efficiency. They “stressed” that advancing energy sector reform is critical to reducing costs, strengthening energy security, and supporting the green transition and that timely implementation of measures under the EU-funded Recovery and Resilience Facility would also be important.

Ministry of Finance Endorsement

The Ministry of Finance said that it welcomes the IMF’s observations and recommendations.

“In particular, we agree with the assessment that Cyprus’ economy has demonstrated resilience, fiscal performance has been exceptional, and, most importantly, that despite recent disruptions, the outlook remains favourable,” the Ministry said.

Regarding the recommendations, the Ministry said it agrees that fiscal policy should become more efficient in terms of expenditure, avoid distortions, focus on growth-enhancing investments, and address the long-term challenges facing Cyprus’ economy, especially considering especially in view of the expenditure benchmark that has been agreed under the new European Economic Governance Framework concerning the growth of net primary expenditure, it said.

Source: CNA(ΚΥΠΕ)