Cyprus Public Debt on Track to Fall Below 50% of GDP by End-2025, Says Finance Minister

Cyprus’ public debt is projected to fall to nearly 50 per cent of GDP by the close of 2025, significantly earlier than the initial target of dropping below 60 per cent by the end of 2026, Finance Minister Makis Keravnos announced on Wednesday following the council of ministers meeting.

Highlighting the European Commission’s 2025 European Semester Spring Package assessment for Cyprus, Keravnos noted that the report recognises the country’s strong economic growth despite international fragility, underpinned by high primary surpluses and a rapid reduction in debt. According to him, this quicker-than-anticipated decline will “free up additional economic potential to increase development spending and defence.”

The finance minister further stressed that Cyprus is no longer listed as a country with macroeconomic imbalances, citing marked improvements in both external and private debt. He added that the European Commission’s findings also acknowledge that the ongoing efforts to diversify the economy are producing tangible results, while Cyprus continues to make progress on the majority of UN Sustainable Development Goals.

Nevertheless, Keravnos drew attention to existing hurdles. The report indicates that Cyprus’ planned expenditure growth for 2025 is estimated at 6.8 per cent, higher than the EU’s reference benchmark of 6 per cent. He explained that this discrepancy could be addressed in the 2026 budget through corrective measures, including the abolition of unnecessary posts within the public service and more efficient use of staff transfers and interchangeability.

On the contentious issue of government payroll, Keravnos described the extent of the public debate as “excessive,” clarifying that the payroll allocated in the 2025 budget for public servants is marginally lower than the previous year’s, with fewer positions than in any prior budget. “We are following this course and the new 2026 budget will be at those levels,” he said, adding that in addition to the International Monetary Fund’s (IMF) input, further specialised studies have been delivered to the ministry to assist in addressing payroll concerns.

Keravnos also underlined that the number of central government employees stands at approximately 12,300, a figure that has either stabilised or declined in recent years. He pointed out, however, that membership in the European Union necessitates the establishment of new institutions and committees, which in turn generates new staffing requirements. By contrast, he noted that the education and healthcare sectors employ significantly larger numbers of workers, while central government has undertaken “drastic” measures to reduce expenditure.

Addressing the issue of the Automatic Cost of Living Adjustment (ATA), which directly affects government payroll, the minister explained that the matter is currently under the remit of the Labour Ministry, in dialogue with social partners. “What will be given and what will be done will be the result of the dialogue,” he remarked, emphasising that the government makes decisions holistically only after considering all factors.

Turning to other structural weaknesses highlighted in the EU report, Keravnos referred to Cyprus’ persistently low investment in research and innovation, which remains at just 0.29 per cent of GDP compared with the EU average of 0.72 per cent. He also acknowledged the underdeveloped state of the country’s capital market, noting that businesses continue to rely heavily on bank financing and often struggle to secure loans.

To tackle this, he said the government has launched the €37.5 million Equity Fund, composed of €30 million in state contributions and additional private investment, with management entrusted to the European Investment Bank (EIB). The fund has already begun directing investments primarily toward technology firms. A further step, he announced, is the creation of the National Enterprise Development Organisation, with its roadmap approved by the council of ministers and related legislation currently undergoing consultation.

In tandem, work is progressing to upgrade the governance framework of state entities in line with international standards. An action plan, developed with input from all ministries, has already been endorsed, with a comprehensive proposal expected to reach the council of ministers by year-end.

Keravnos said that reforms to cut red tape and rationalise the public service are also “at an advanced stage.”

On the energy front, he admitted that Cyprus continues to rely heavily on oil products, with natural gas still absent from the energy mix. He also highlighted other pressing challenges, including waste and water management, as well as the persistent gap between labour market demands and the skills of the workforce. The opening of new technical schools this year, he concluded, is part of the government’s wider strategy to better align education with economic needs.

By fLEXI tEAM