Filenews 14 February 2026 - by Theano Thiopoulou
Positive forecasts for the Cypriot economy, without the need for cuts or austerity as in other core eurozone countries, are included in the European Commission's annual "Debt Sustainability Monitor 2025" report, which records an overview of the public debt of all member states.
However, he points out that the fiscal discipline that Cyprus is currently applying should continue.
There are factors that increase the risks indicated in the report and these are related to the pressures for higher salaries in the public sector, due to the automatic indexation and the negative net international investment position of Cyprus.
On the other hand, risk mitigating factors include relatively high debt maturities in recent years, a low share of short-term government debt, significant cash buffers, relatively stable sources of financing with a diversified investor base, and the euro in which the debt is denominated.
More specifically, the report states that short-term risks to fiscal sustainability are reflected by a number of indicators. The Government's gross financing needs are expected to increase, but will remain small, at around 4% of GDP over the period 2026-2027.
Financial market perceptions of Cyprus are favourable, as its debt rating continued to upgrade in 2025. Medium-term fiscal sustainability risks are moderate, according to the report.
Based on the baseline scenario, debt is projected to decline steadily over the medium term, reaching around 20% of GDP in 2036. The decrease in the government debt ratio is partly due to the assumed structural primary surplus of 3.3% of GDP as of 2026, excluding changes in the cost of population ageing. At the same time, ageing-related expenditure is projected to increase significantly, putting a strain on public finances.
The baseline forecast benefits from yet another favourable (albeit decreasing) phenomenon. The Government's gross financing needs are expected to fall to 0.4% of GDP by 2036. In the financial stress scenario (in which market interest rates temporarily increase by 1 percentage point compared to the baseline), the debt ratio will remain broadly unchanged compared to the baseline until 2036.
Low risks
The report states that 11 countries are at low risk. For five countries – Bulgaria, the Czech Republic, Estonia, the Netherlands and Sweden – debt is rising, but remains below 60% of GDP. For the other six countries – Denmark, Ireland, Cyprus, Luxembourg, Malta and Portugal – the debt is decreasing, reaching a level of less than 60% of GDP by 2036 for all but Portugal.
The classification of Cyprus at positive levels is based on the assumption that the country will maintain its original position, i.e. a relatively large primary surplus that is currently considered demanding based on historical standards. The report notes that Member States' investment base remains stable, although in some cases, the significant share of debt held by non-residents may need to be monitored.
A significant base of foreign investors highlights a country's creditworthiness and reduces risks between the state and national banking systems. Several euro area Member States have large shares of foreign-held public debt, including the Baltic States, Greece, Austria, Belgium, Cyprus, Finland, Slovakia, Luxembourg, Slovenia and France (TFEU) of more than 50% of total public debt.
Regarding the banking system, it is noted that the high volatility of loan-to-deposit ratios between Member States reflects diversified lending markets in the EU. Countries such as Sweden, Finland, Denmark and the Netherlands record higher loan-to-deposit ratios, with banks focusing primarily on lending activities. In contrast, the banking systems of Lithuania, Hungary and Cyprus are more focused on collecting deposits (with lower loan-to-deposit ratios).
