CYPRUS appears to be at high risk of fiscal stress in the short-term and also faces high sustainability risks in the medium and long run, according to a European Commission report released yesterday. The Fiscal Sustainability Report 2012 report said Cyprus should focus on “resolutely continuing to implement sustainability-enhancing measures that avert potential risks to fiscal sustainability from materialising or intensifying in the short-term.” According to the report, which covers the 24 EU nations not in full bailout programmes, short-term “risks for fiscal stress have abated in nearly all countries” since a previous sustainability report in 2009. While the 2009 report indicated that almost two-thirds of EU nations had “elevated risks of fiscal stress for 2010,” yesterday’s report said only Spain and Cyprus “appear to be still at risk” in the short term.
The report said the Cypriot state must also work on further containing the growth of age-related expenditure through pension reform to contribute to the sustainability of public finances in the long-term.
Under a no-policy-change assumption, debt would increase from 102.7 per cent of GDP in 2014 to 127.4 per cent in 2020 and to 171.8 per cent in 2030, the report said.
“Efforts should therefore be made in order to ensure that the debt ratio is put on a long-term downward path,” the report said.
The island must implement long-term sustainability enhancing policies equivalent to a permanent improvement of 8.2 percentage points of GDP – an effort, which is substantially above the average improvement required for the EU as a whole (2.7pp), thus reflecting the significant ageing-cost component.
Cyprus at high risk of fiscal stress in the short-term, report says