Public debt to shrink under 100% in 2018, says Finance Ministry

Public debt to shrink under 100% in 2018, says Finance Ministry

Medium term prospects of the Cypriot economy are more optimistic than had been anticipated, according to the Ministry of Finance which in a report entitled “Economic Developments and Prospects 2016 – 2018” forecasts that public debt will shrink under 100% in 2018.

According to the ministry`s estimate, growth rate for 2015 will range between 1% and 1.5% contrary to the Troika`s predictions of just 0.5%.

For 2016, the report says GDP change rate will range close to 1.8% compared to 1.4% while it agrees with Cyprus` international lenders` forecast for growth between 2% – 2.2% in 2017 and 2018.

The improved predictions are based on the expectations for better performance of the economy in 2015.

Referring to the labour market, the Finance Ministry estimates that from 2016 onward unemployment will follow a downward trend. For 2016, unemployment is expected to be close to 15%, in 2017 to drop to 13.7% and in 2018 to 12.4%.

At the same time inflation is expected to increase to 0.9% in 2016 due to an expected increase in private demand. For 2017 and 2018 inflation is expected to reach 1.3% and 1.5% respectively.

Fiscal balance in 2017 is estimated to be in surplus and reach 0.5% as a percentage of GDP, the report says, while the primary balance (excluding expenditure to service the debt) is forecast to also be well out of the red and reach 2.8% of GDP.

In 2018 fiscal balance is expected to reach 1.1% of GDP while primary balance is expected to be at least 3.3% of GDP.

“The better than expected development of the economy, in combination with the gradual restructuring of the banking sector, has contributed to improved confidence,” the report points out.

On the banking sector, the Ministry stresses that the most significant challenge continues to be “the very high percentage of non performing loans (NPLs).” It does highlight however that a drop in NPLs will be achieved gradually as positive prospects for the Cypriot economy will continue to improve expectations.