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.