Cyprus exits enhanced surveillance ten years after crisis

Ten years after the financial crisis Cyprus has exited the European Commission’s excessive imbalances procedure (EIP), on the basis of EU documents issued under the spring package of the 2023 European Semester.

The EIP procedure shows that a member state is experiencing excessive vulnerabilities and it is placed under enhanced surveillance to ensure compliance with EU fiscal rules.

An EU official in Nicosia also said that Cyprus has already achieved its medium-term fiscal target, as the EU is poised to restore its fiscal rules as the Stability Pact’s escape clause will be terminated in the end of 2023.

“Cyprus has achieved significant progress and it is on a path of gradual correction,” the official said, noting that the island is now in the imbalances procedure.

The exit from the EIP was mainly due to the reduction of private debt from 250% of GDP in end-2021 to 217% in the end of 2022, the reduction of public debt by 14.5 percentage points to 85% of GDP in 2022, as well as the decline of the stock of non-performing loans (NPLs) to 5.2% under the Commission’s methodology. The same official said that these indices are placed on a downward path.

Cyprus also showed improved Net International Investment Position to -105.3% of GDP which excluding special purpose entities declines further to -40.9% GDP.

Furthermore, echoing the EU Commission’s recommendations for Cyprus, he said that the government should expedite the implementation of its €1.1 billion National Recovery and Resilience Plan as Cyprus has received just one disbursement so far, achieving 14 milestones of the plan’s total 271. He also recalled that under the EU Recovery and Resilience Facility disbursements will end in June 2026.

The same official said that Cyprus should do more to promote renewable energy, in a bid to reduce dependency on fossil fuels highlighting that Cyprus should promote sustainable transport which accounts for 42% of energy demand in Cyprus.