Strong Fiscal Fundamentals And Economic Momentum

Cyprus continues to demonstrate exemplary fiscal discipline, with public debt projected to dip below 60% of GDP this year and fall under 50% in the subsequent years, according to German rating agency Scope. The report, highlighted by Cypriot daily Politis, reaffirms the country’s A- credit profile with a stable outlook, driven by robust fiscal indicators, a record primary surplus, and a persistent reduction in non-performing loans (NPLs).

Robust Economic Performance And Surplus Highlights

The country’s economic resilience is underscored by a 3.3% year-on-year GDP growth in the second quarter of 2025, positioning Cyprus as the second-fastest growing economy in the eurozone after Ireland. Looking ahead, Scope anticipates an annual growth rate of approximately 3% through 2030, even in the face of weaker euro area activity and elevated US tariffs.

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Fiscal performance has been particularly noteworthy. After achieving a record general government surplus of 4.3% of GDP in 2024, the nation posted a cash balance of €840.6 million—2.4% of GDP—for the first seven months of 2025, with expectations of a full-year surplus of around 3.5% fueled by rising social security contributions and income and wealth taxes.

Effective Debt Management And Banking Sector Improvements

Public debt has declined significantly to 65% of GDP in 2024, down nearly 49 percentage points from its 2020 peak. Analysts attribute further debt reduction to strict fiscal discipline and continued growth momentum. High cash reserves, estimated at 11% of GDP at the close of 2024, further strengthen fiscal flexibility.

In parallel, the banking sector is experiencing a marked improvement in asset quality. The NPL ratio dropped to 5.9% in May 2025, with an enhanced coverage of 61%, although household NPLs remain moderately elevated at 7.6% amidst high private debt. The impending activation of the countercyclical capital buffer in 2026 is expected to solidify bank capital levels, ensuring continued sector resilience.

Balancing Fiscal Pressures Amid External Risks

Despite buoyant revenue growth—including significant gains in social security contributions and income and wealth taxes—rising government wage costs and escalating social transfers present challenges to long-term budget flexibility. Planned tax reforms aimed at easing burdens on the middle class and curtailing evasion may not fully offset these pressures. Additionally, external risks such as tepid eurozone growth and intensifying trade tensions warrant cautious scrutiny.

A Promising Outlook For Cyprus

Nevertheless, Scope forecasts a gradual convergence of NPLs towards the EU average, accompanied by a fiscal balance that, while easing, will remain among the strongest in the eurozone at just under 1% of GDP by 2030. With strategic reforms and robust fiscal management, Cyprus is well-positioned to sustain its economic ascent, as evidenced by the upcoming sovereign rating review scheduled for October 10, 2025.