Cyprus has a “nimble and dynamic economy” that should grow about 2.5% this year, the International Monetary Fund said on Friday, while it added that the island should resist any temptation to loosen fiscal policy.
The east Mediterranean island required a bailout from the IMF in 2013 after fiscal slippage and heavy exposure to Greece, which experienced a full-blown debt crisis.
“Cyprus has demonstrated impressive resilience to successive shocks,” said Alex Pienkowski, IMF mission chief to Cyprus after a week-long assessment.
At 3.4%, Cyprus’s growth was among the highest in the euro area in 2024, supported by foreign investment and strong tourism arrivals. Growth is expected to moderate to around 2.5% this year and 3% in the medium term, the IMF said.
It said the island’s authorities should continue to reduce public debt and avoid unbudgeted pay sector hikes given that inflationary pressures remain high above 2%.
Near-term risks are tilted to the downside and include potential trade conflicts impacting Cyprus’s main trade partners, an intensification of regional tensions or new energy price shocks, the IMF said. [Reuters]