Insider Economy IMF’s Fiscal Monitor expects deterioration of Cyprus' public debt

IMF’s Fiscal Monitor expects deterioration of Cyprus’ public debt

The 2019 Fiscal Monitor, issued by the International Monetary Fund (IMF), reflects the deterioration of Cyprus’ public debt as a result of the issue of bonds to support the sale of the Cooperative Central Bank to Hellenic Bank.

The government issued €3.2bn in bonds in favour of the Co-op bank, to acquire its non-performing loans and other assets after the deal with Hellenic Bank, that acquired the healthy operations of the then state – owned lender.

As a result, the public debt rose to 102.5% of GDP in 2018, from 96% in 2017, and will fall to 94.3% in 2020 and decline further to 67.3% by 2024, according to the Fund’s report. In its 2018 Fiscal Monitor report, the IMF had predicted that Cyprus’ public debt would go down to 97% of GDP in 2018, 89.5% in 2019 and 83% in 2020.

It also said that gross financing need for 2019 has increased to 8.7% of GDP. The issue of bonds in favour of the Co-op bank caused the nonresident holding of general government debt to decrease to 74.6% in 2018 from 87.4% in 2017, according to the Fund.

Moreover, the IMF said that Cyprus maintains strong primary and fiscal surpluses, which help to keep public debt on a declining path. The Fund projected that primary surplus would fall to 4.1% in 2019 and remain above 4% until 2024, from 5.3% of GDP in 2018.

The report also estimated that budget surplus would go down to 1.85% of GDP this year, from 2.9% of GDP in 2018, rise to 2.0% in 2020 and remain above 2% until 2024.

The IMF also projected a significant deterioration of general government revenue, estimating a decline to 38.4% of GDP in 2019 and to 37.6% in 2020. In the period until 2024 general government revenue is expected to remain around 37%.

Moreover, the report estimated that General Government expenditure in 2019 would stand at 36.6% of GDP in 2019, the same level as in 2018, fall to 35.7% of GDP in 2020 and remain at 35% until 2024.

According to the report, pension spending will increase by 0.7% annually until 2030.

(Cyprus News Agency)

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