The Cypriot economy continues to show strong resilience, with German credit rating agency Scope estimating that public debt will fall below 60% of GDP in 2025 and below 50% in the coming years. Growth is projected to remain around 3% annually during 2025–2030, despite a less favorable external environment and higher U.S. tariffs. Cyprus’ credit profile remains at A-/Stable, supported by strong fiscal indicators, a historically high primary surplus, and the ongoing reduction of non-performing loans (NPLs) in the banking sector.
Growth Rate
Cyprus remains among the fastest-growing economies in the euro area, with GDP up 3.3% year-on-year in Q2 2025, the second-highest after Ireland, according to Scope’s latest data. Despite successive shocks over the past five years, the pandemic, Russia’s invasion of Ukraine, high inflation, economic activity and the labor market maintain positive momentum, allowing the economy to absorb external pressures.
Following the record general government surplus of 4.3% of GDP in 2024, cash data for 2025 show the positive trend continuing, with a surplus of €840.6 million in the first seven months (2.4% of GDP), although €71 million lower than in the same period of 2024. Scope forecasts a surplus of around 3.5% of GDP for 2025, as revenues are boosted by social security contributions and income/property taxes, reflecting strong employment and growth.
Debt and Cash Buffers
Public debt fell to 65% of GDP in 2024, nearly 49 percentage points below its 2020 peak (113.6%). It is expected to fall below 60% this year and towards 50% in the coming years, thanks to growth and fiscal discipline, note Scope analysts Carlo Capuano and Alessandra Poli. Resilience is also reinforced by high cash reserves, estimated at about 11% of GDP at the end of 2024, providing flexibility in managing government financing needs.
Revenues and Spending Risks
Revenue growth remains strong: social security contributions +9.2% and income/property taxes +8.8% in the first seven months, supported by a tight labor market and robust activity, according to Scope. However, there is a rising risk of more “rigid” expenditures, as public sector wages (+6.9%) and social transfers (+6.7%) accelerate developments that may constrain the budget’s future flexibility.
Tax Reform
The upcoming tax reform may not be fiscally neutral, with directions including middle-class relief, greater transparency, and tackling tax evasion, while more details are expected following public consultation. Scope projects a gradual narrowing of the overall balance to just below 1% of GDP by 2030, a level still among the strongest in the eurozone.
Banking System and NPLs
Stability in the financial system continues to improve: the NPL ratio fell to 5.9% in May 2025, around 1.5 percentage points lower year-on-year, while NPL coverage rose to 61% from 54% a year earlier, strengthening banks’ loss-absorption capacity. Despite high interest rates, asset quality continues to improve, while from January 2026 the countercyclical capital buffer (CCyB) will take effect, further shielding already strong capital cushions.
NPLs remain largely “legacy” in nature, with significant volumes outside the banking system and higher ratios in smaller banks, Scope notes. In the household sector, the NPL ratio is higher, at 7.6% in May, which combined with high private debt is a source of concern, though mitigated by subdued new lending and a strong labor market.
Scope says that the external environment remains less favorable, with modest eurozone growth and higher U.S. tariffs posing potential headwinds for export- and trade-exposed activities. Nevertheless, the baseline scenario foresees steady growth of around 3% until 2030 and further gradual convergence of the NPL ratio towards the EU average, close to 2% in the coming years, provided the current macroeconomic backdrop is maintained.
Overall, the A-/Stable rating is anchored in three pillars: strong primary balances, steady debt reduction, and systematic bank balance sheet repair, with significant cash buffers as an additional safety net. The next scheduled review of the Republic of Cyprus by Scope is set for October 10, 2025, keeping the economy under close watch as it enters a new fiscal phase and reform cycle.
