Cyprus records EU’s steepest quarterly fall in government debt ratio as public finances strengthen

Cyprus recorded the European Union’s largest quarterly decline in government debt relative to gross domestic product (GDP) during the second quarter of 2026, as the country’s public debt continued to fall while debt ratios across the EU and the euro area increased.

Figures published by Eurostat on Wednesday showed that Cyprus’ general government gross debt-to-GDP ratio dropped to 48.5 per cent at the end of June, down from 51.5 per cent at the end of March. The decrease of three percentage points was the largest quarterly reduction among EU member states.

The improvement was even more pronounced compared with the same period last year. Cyprus’ debt ratio fell by 9.5 percentage points from 58.1 per cent in the second quarter of 2025, giving the country the EU’s second-largest annual decline, behind Greece.

In monetary terms, Cyprus’ general government gross debt stood at €19.2 billion at the end of June 2026, compared with €20.03 billion at the end of March and approximately €21.7 billion a year earlier. The figures indicate that the country’s outstanding public debt has declined both in absolute terms and as a proportion of economic output.

Cyprus leads quarterly debt reduction across the EU

Cyprus’ performance stood out against the broader European trend, with government debt ratios increasing in most EU member states during the second quarter.

Greece recorded the second-largest quarterly reduction, with its debt-to-GDP ratio falling by 2.7 percentage points. Hungary followed with a decline of two percentage points, while Ireland’s ratio decreased by 1.8 points, Croatia’s by 1.6 points and Slovakia’s by one percentage point.

On an annual basis, Greece recorded the largest reduction in the bloc, with its debt ratio falling by 11.2 percentage points. Cyprus followed with a decline of 9.5 points, ahead of Slovenia, where the ratio decreased by 4.5 points, and Portugal, which registered a fall of 3.4 points.

The figures place Cyprus among the strongest performers in the EU in reducing its public debt burden relative to the size of its economy.

EU and euro area debt ratios move higher

While Cyprus continued to reduce its debt ratio, the EU as a whole recorded an increase during the second quarter of 2026.

The EU’s general government gross debt-to-GDP ratio rose to 82.9 per cent at the end of June, compared with 82.5 per cent at the end of March. The euro area’s ratio also increased, reaching 88.8 per cent from 88.4 per cent in the previous quarter.

The year-on-year figures showed a similar deterioration. The EU ratio increased from 81.4 per cent in the second quarter of 2025 to 82.9 per cent in the corresponding period of 2026, while the euro area ratio rose from 87.3 per cent to 88.8 per cent.

Quarterly comparisons showed that government debt ratios increased in 15 member states and decreased in 10, while the Netherlands and Spain recorded no change.

Poland registered the largest quarterly increase, at three percentage points, followed by Portugal at 2.1 points, Latvia at 1.9 points, Lithuania at 1.6 points and France at 1.4 points.

Italy and Malta each recorded increases of 1.3 points, while Estonia’s ratio rose by 1.1 points.

The annual comparison was also unfavourable for most member states, with 18 countries recording higher debt ratios and nine registering declines.

Poland experienced the largest annual increase, at 6.7 percentage points. Lithuania followed with 4.9 points, Belgium with 3.8 points, France with 3.7 points, Luxembourg with 3.6 points and Estonia with three points.

Greece and Italy retain the highest debt burdens

Despite the reductions recorded by some countries, government debt remained particularly high in several large European economies.

Greece had the EU’s highest government debt-to-GDP ratio at the end of June 2026, at 140.8 per cent. Italy followed at 139.9 per cent, while France recorded 119.1 per cent, Belgium 110.2 per cent and Spain 101.4 per cent.

At the opposite end of the scale, Estonia had the lowest ratio, at 26.1 per cent of GDP. Denmark followed at 27.1 per cent, Luxembourg at 28.2 per cent and Bulgaria at 28.7 per cent.

The figures highlight the substantial differences in public indebtedness across the bloc, with some countries maintaining debt levels well below the EU’s reference threshold while others continue to carry liabilities exceeding their annual economic output.

Under the EU framework, the reference value for government debt is 60 per cent of GDP.

Cyprus maintains a government surplus

The decline in Cyprus’ debt ratio comes alongside a comparatively strong fiscal position, although the latest quarterly figures also show that the government surplus has narrowed.

Audited annual figures published by the Cyprus Statistical Service and reflected in Eurostat’s data put government debt at €20.05 billion at the end of 2025, equivalent to 52.3 per cent of GDP.

Cyprus was among five EU member states to record a government surplus during 2025, with the surplus reaching 3.6 per cent of GDP. The result underlined the country’s favourable budget position and provided additional context for the subsequent reduction in its debt burden.

However, the seasonally adjusted government surplus declined to 3.3 per cent of GDP in the second quarter of 2026, from 3.8 per cent in the first quarter. This represented a further reduction of 0.5 percentage points.

The quarterly figures show that Cyprus’ surplus fluctuated throughout 2025. It stood at 3.6 per cent of GDP in the first quarter, fell to 3.3 per cent in the second and 2.9 per cent in the third, before rising to 4.3 per cent in the fourth quarter.

The surplus had previously been higher in 2024, reaching 4.5 per cent of GDP in the second quarter, followed by 4.3 per cent in the third quarter and 2.9 per cent in the fourth.

Although the latest decline indicates that the surplus has moderated, the country continued to record a positive budget balance in the second quarter of 2026.

Government debt levels at the end of 2025

The annual figures for 2025 provide further context for the different fiscal positions across the EU.

Estonia recorded the lowest government debt ratio at the end of that year, at 24 per cent of GDP, followed by Luxembourg at 26 per cent and Denmark at 27.2 per cent. Bulgaria’s ratio stood at 29.9 per cent, Ireland’s at 34.8 per cent, Sweden’s at 35.1 per cent and Lithuania’s at 39.3 per cent.

By contrast, 12 member states had government debt ratios above the EU’s 60 per cent reference level.

Greece recorded the highest ratio, at 145.4 per cent of GDP, followed by Italy at 136.7 per cent, France at 115.7 per cent, Belgium at 108.1 per cent and Spain at 100.5 per cent.

Cyprus’ 2025 debt ratio of 52.3 per cent remained below the EU reference threshold, and its further decline to 48.5 per cent by the end of June 2026 widened that margin.

Composition of public debt across Europe

Eurostat’s latest figures also outlined the composition of government debt in the EU and the euro area.

At the end of the second quarter of 2026, debt securities accounted for 84.5 per cent of general government debt in the euro area and 83.9 per cent across the EU. Loans represented 13.1 per cent of euro area debt and 13.8 per cent of EU debt, while currency and deposits accounted for 2.4 per cent in both areas.

The figures show that debt securities remained the dominant component of public borrowing across Europe.

Eurostat also reported data on intergovernmental lending, which reflects loans extended by EU member state governments to other member states. Such lending stood at the equivalent of 1.3 per cent of GDP in the euro area and 1.1 per cent in the EU at the end of June.

Government revenue and expenditure rise in nominal terms

The latest data also highlighted developments in government revenue and expenditure across the EU and the euro area.

In the euro area, seasonally adjusted government revenue stood at 46.8 per cent of GDP in the second quarter of 2026, marginally below the 46.9 per cent recorded in the first quarter.

Although revenue increased by approximately €21 billion in absolute terms, the increase was outweighed by growth in nominal GDP, resulting in a lower revenue-to-GDP ratio.

Government expenditure in the euro area moved in the opposite direction, rising to 50.1 per cent of GDP from 50 per cent in the previous quarter. Seasonally adjusted spending increased by approximately €28 billion.

A similar pattern emerged across the EU. Government revenue fell to 46.3 per cent of GDP from 46.4 per cent, despite an increase of around €25 billion in seasonally adjusted revenue.

As in the euro area, nominal GDP growth outweighed the increase in revenue when measured as a share of economic output.

EU government expenditure rose to 49.8 per cent of GDP from 49.6 per cent in the first quarter, with seasonally adjusted spending increasing by approximately €42 billion.

The figures therefore showed rising nominal expenditure and modestly declining revenue ratios across both the EU and the euro area, even as Cyprus continued to record a government surplus.

Data compiled under EU fiscal reporting rules

The figures were included in Eurostat’s latest government deficit and debt release, based on member states’ second notifications for 2026 under the EU’s Excessive Deficit Procedure.

The data were compiled using the European System of Accounts 2010 methodology, the common accounting framework used to ensure comparability across member states.

Taken together, the latest figures show Cyprus making substantial progress in reducing public debt relative to GDP, with the largest quarterly decline in the EU and the second-largest annual reduction. The fall in the country’s outstanding debt, combined with its continued budget surplus, contrasts with the increase in debt ratios recorded across the EU and the euro area.

Nevertheless, the moderation in Cyprus’ government surplus during the first half of 2026 indicates that the improvement in its debt position is occurring alongside changes in the government’s budget balance. The coming quarters will provide further evidence of whether the downward trend in public debt and the country’s favourable fiscal position can be sustained.

By fLEXI tEAM