In the basic scenario, the government debt, which fell to a revised 107.1% of economic output last year after peaking at 107.5% in 2015, is expected to drop to 99.7% in 2018, the finance ministry said in its fiscal risks report, dated September 2017. Under the same scenario, the public debt is expected to further fall to 94.6% of gross domestic product (GDP) in 2019 and to 88.8% the following year.

The first scenario provides for an increase in the annual interest rate of public debt by 0.5 percentage points over the next three-year period, the second a slowdown of economic growth by also 0.5%, the third a reduction of the primary surplus generated by 0.5% of economic output and the fourth a combination of the other three scenarios with a deviation of each variable by 0.25 percentage points, the ministry said.

While all four scenarios allow for a reduction of public debt as a percentage of GDP, the fist scenario, that provides for increase in borrowing costs, leads to a gradual decline of public debt to 91.9% by 2020, the largest drop among all four scenarios, the ministry said. The economic slowdown scenario, on the other hand, will allow public debt to drop to 101.3% by 2020.

Under the third scenario, the reduced primary deficit will allow the government to reduce debt to 96.2% in three years, the finance ministry said. Last, under the fourth scenario, which provides a mixture of deviations from base-scenario, the government will be in position to reduce its debt to 97.4%.

In September, the ministry revised its economic growth forecast to 3.6% from a previous 3%. The economy is expected to expand next year around 3 % and growth is forecast to slow down to 2.7% in 2019 and 2020. The government is expected to generate a fiscal surplus of 1% of GDP next year compared to 0.9% this year. In 2019, it is expected to post a 1% increase and a further 1.1% the following year.

Source: Cyprus Mail