External and internal risks ‘put strain on economy’

Significant external and internal risks to the economy were highlighted by Finance Minister Makis Keravnos on Monday during the presentation of the state budget to the House finance committee.

Keravnos stressed the importance of maintaining a surplus in the fiscal balance, with the surplus projected to reach 2.7 per cent of GDP by 2025.

He also prioritised reducing public debt to 60 per cent of GDP by 2025, down from 68.9 per cent in 2024.

Other key priorities in the budget include the green transition, digital reforms and necessary structural adjustments.

The main risks mentioned by Keravnos include non-performing loans from previous years, which he said continue to burden public finances, and the significant deficits in the pension funds of semi-governmental organisations and local authorities.

Further concerns were raised about potential compensation claims worth tens of millions of euros from court rulings, as well as potential EU fines for non-compliance with environmental directives, such as those related to urban wastewater management.

Another significant risk relates to the developments at the Vasiliko gas terminal. Potential compensation claims that the Republic could face may amount to €529 million.

However, Keravnos said that recent discussions with the European Investment Bank (EIB), the European Bank for Reconstruction and Development, and the European Commission had been positive, adding that if the Vasiliko projects proceed, Cyprus would not be required to repay the funding received.

Keravnos also addressed the ongoing need to fund the state health service Okypy, which is expected to have a deficit of €95 million in 2024.

He said that the annual wage burden for the organisation amounts to €300 million and said the situation is being closely monitored.

Geopolitical risks from the regional crisis, increased shipping costs, and the financial impact of rising migrant flows were also mentioned, with migration-related spending estimated at €204.5 million for 2024.

External risks such as climate change, natural disasters, compensation to farmers, and the need to purchase water due to droughts were also listed as challenges.