Cyprus 2027-2029 Budget Faces Complex Geopolitical and Domestic Economic Risks
Cyprus' 2027-2029 Budget and Fiscal Policy Strategic Framework highlights a challenging economic outlook amid global geopolitical tensions and domestic pressures. The ongoing conflicts in Ukraine and the Middle East are identified as key external threats that could impact Cyprus through trade, energy costs, and investments. Despite these uncertainties, the government expects economic growth of 2.9% in 2027, unemployment to remain at 4.5%, and inflation at 2.5%, with public debt forecasted to decline to 46.6% of GDP.
The framework also warns of indirect risks from possible new sanctions by the US and UK, potential trade wars, and a resurgence of foot-and-mouth disease affecting agriculture exports. Major fiscal uncertainties relate to halted energy projects, including the Vasiliko natural gas terminal, which involves arbitration claims and potential liabilities approaching EUR 410 million. The Great Sea Interconnector electricity grid project is also a noted fiscal risk.
On the domestic front, Cyprus's banking sector shows resilience with a stable non-performing loans ratio, yet a large volume of troubled loans remains in acquiring companies. Healthcare sector deficits pose additional risks to state finances. Public debt is expected to decrease further through 2029, accompanied by recovering state surpluses, reflecting cautious fiscal management amid volatile conditions.
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