Defying Expectations, Nicosia’s Budget Produces Surplus for the Fourth Year Running

Cyprus has consistently outperformed projections since the financial crisis of 2012. For the fourth year in a row, the Cypriot national budget will produce a surplus and avoid austerity measures.

For the fourth year running, the Cypriot national budget will produce a surplus. This is good news for the country’s growing economy and increases confidence for foreign investors as well as local markets. The 2019 budget provides for a revenue of 8.5 billion euro, and an expenditure of 7.9 billion euro. This will leave Nicosia a surplus of 600 million euro, putting it in line with EU regulations and accounting for three per cent of the Cypriot GDP. It’s also a further improvement from this year’s budget, which leaves the government with 190 million euros, one-third of the suprlus planned for 2019.

This is great news for the Cypriot government as well as the island’s residents. Cypriot Finance Minister Harris Georgiades has assured the populace that Cyprus will continue the gradual return to pre-crisis salaries and pensions, and also assured creditors that Cyprus will not return to the fiscal practices that presaged the crisis.

“The 2019 budget is a surplus one as was the budget for this year. It does not in any way lead to a fiscal loosening, but is not an austerity budget either”, Georgiades said. “The strong recovery of the economy allows us to turn deficits into surpluses”, he told reporters. “The basic objective of economic policy is to consolidate development, and I think that the state budget is a prerequisite for sustainable growth and avoiding deficits in the past”.

Since the Cypriot banking crisis in 2012, Cyprus received bailout funds from both Europe and Russia. In return for 10 billion euros in assistance, Cyprus had to hand over the vast majority of its control over the country’s economy. The bailout support program featured financial transfers through March of 2016, but outperforming all projections, Cyprus regained access to private and international lending markets as early as June 2014 – nearly two years ahead of schedule. In 2016, Cyprus exited a three-year economic probation period imposed by the Eurogroup and the International Monetary Fund, which instituted strict austerity. Key reforms instituted since then have made a noticeable and positive impact on the Cypriot economy.

As part of the reforms, the government passed new laws that amended the framework for foreclosure and insolvency, as well as on loan sales. They also overhauled the public sector’s human resource management and ongoing privitisations, part of Cyprus’ ongoing economic liberalisation.

According to the International Monetary Fund World Economic Outlook for 2017, Cyprus GDP per capita ranks 19th in Europe and 35th in the world. Copyright: Elexey Gresser/

Another notable reform addressed effective management for non-performing loans (NPLs), a problem that ultimately caused the demise of the Cyprus Cooperative Bank. “The legacy problem of NPLs is, in my view, a priority”, stated Georgiades in an interview with the South EU Summit last month. The Cypriot government, under a scheme called project Estia, created an asset management company to deleverage NPLs from Cypriot banks. “Such moves are important in the sense that they signify a break with the past”, Georgiades said, convinced that the Estia will create a fresh start and stabilise the banking sector, a tool that has been effective in other Europe countries, like Spain.

The government also issued 3.2 billion euro in bonds earlier this year, which was part of the agreement between the Hellenic Bank and CCB, when the former took on the majority of CCB’s primarily performing loans.

While Cypriot public debt still exceeds the size of the economy, Georgiades said that the public debt ratio should dip from this year’s expected 104 per cent to below 100 per cent in the coming year. The economy is expected to continue to grow at a rate of 3.8 per cent of GDP. Last year, the growth rate topped four per cent.

Cyprus’ new budget for next year reduces the defence levy, though the Electronic Authority of Cyprus (EAC) refuses to slash taxes on electricity, to the consternation of many. The new budget also provides funds for the creation of a junior ministry in charge of tourism, a significant part of the Cypriot economy, which suffered during the financial crisis. In addition, funds were earmarked for a national health scheme as well as for a “chief scientist”, to head an institution to reform research and innovation. 250 million euro are also allocated for e-governance, which Georgiades called “the most effective form of public sector reform”. In total, public expenditure is expected to increase by a healthy three per cent to allow for these and other projects.

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B. Lana Guggenheim

Lana is a freelance journalist based in New York City. She has a M.Sc. in International Conflict from the London School of Economics and Political Science. She has worked as an analyst, reporter, and editor, covering extremism, culture, economics, and democracy.

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