fiscal outlook — Cyprus’ economy is enjoying a robust fiscal outlook, with growth projected to hover around 3 per cent, according to Michalis Persianis, president of the Fiscal Council. In his recent address accompanying the council’s 2024 activity report, Persianis stressed the resilience of the economy and its diverse sectors, which are all contributing positively to this growth.
He highlighted that state revenues have consistently exceeded expectations, even outpacing inflation and growth forecasts. This fiscal stability is complemented by low unemployment rates, although Persianis cautioned that further reductions in unemployment could signal underlying issues rather than success.
“Inflation remains zero, and this is during a period of high growth,” Persianis noted. He acknowledged that while consumption has slowed for the second consecutive year, it remains a critical driver of economic activity.
Despite the current positive indicators, Persianis warned of potential risks that could materialise in the coming years. He reflected on the cyclical nature of economies, asserting that “these are the ‘easy’ times, and that is precisely what makes them dangerous.” He pointed out that the Fiscal Council’s mission extends beyond immediate concerns, focusing on long-term fiscal and macroeconomic health.
Persianis identified that risks are accumulating, particularly with pressures expected to emerge around 2027-2028. He explained that while inherent risks are growing, the external environment is increasingly unpredictable, influenced by political and geopolitical instabilities, rising state debt, and the rapid evolution of cryptocurrencies.
“Climate change is now a key parameter in macroscopic models and business strategies,” he stated, underscoring its significance in future planning. Persianis elaborated on the need for Cyprus to adopt proactive measures to mitigate these emerging risks, especially concerning infrastructure and natural resource management.
He outlined two key strategies to navigate these challenges. The first involves maintaining flexible policy options for future fiscal interventions, achieved by creating fiscal space through prudent debt management. “If the continuing reduction of the debt constitutes the cutting edge in this direction, then the better structuring of state expenditure constitutes its handle,” he explained.
The second strategy requires preparing for visible risks, particularly those associated with climate change. Persianis noted that natural disasters and the increasing demand for resources, like water and energy, are already pressing concerns. “Serious increases in expenditure will be required for these, and the continuing delay concerns us,” he warned.
On a positive note, he asserted that the solutions to these problems are achievable and do not require immediate implementation. “The country can and does have both the tools and the fiscal and macroeconomic latitude to take them, if they are sought,” he remarked, emphasising the importance of seizing the current window of opportunity.
Persianis also mentioned the Fiscal Council’s commitment to strengthening its capabilities, noting that while progress has been made, further development is necessary. He pointed out that the council must enhance its analytical capacity for the long term, in contrast to short-sighted approaches that have previously led to risk accumulation.
As part of its mission, the Fiscal Council is organising a thematic conference of the European Network of Independent Fiscal Institutions (EU NIFI) in early 2026. This event will coincide with Cyprus assuming the Presidency of the European Commission, providing a platform for discussing fiscal frameworks among EU member states.
Persianis concluded by reiterating the critical role of institutions like the Fiscal Council during prosperous times, as these periods present both opportunities for correction and risks of significant missteps. The council’s activities reflect its ongoing commitment to identifying and addressing long-term fiscal risks, ensuring Cyprus can navigate the challenges ahead effectively.
