Cyprus’ cash reserves to aid government amid global uncertainty

The Public Debt Management Office (PDMO) released its annual report for 2023 on Tuesday, stating that the robust cash reserves of the Republic of Cyprus are expected to support the government in tackling the uncertainty observed in the global economy.

According to the report, the reserve of liquid assets at the end of 2023 amounted to nearly €2.83 billion (liquid funds deposited with the CBC), covering 132% of the debt maturing in the next twelve months. Excluding liquid assets, the Republic’s net debt stands at 68% compared to the gross debt of 77.4% of GDP at the end of 2023.

“The strong cash position of the Republic of Cyprus is expected to assist the government in addressing the uncertainty observed in the global economy and in limiting any negative impacts on cost-risk indicators to moderate levels,” the report said.

The PDMO also noted that amidst the upward trend in interest rates and expectations of their remaining at high levels in the near future, a significant portion of liquid assets was used to cover financing needs for 2023, “thus contributing to shaping the public debt as a percentage of GDP at lower levels.”

The reduction in debt in 2023 amounted to €740 million, mainly attributed to strong economic growth resulting in an improvement in the debt-to-GDP ratio primarily due to nominal GDP growth.

In addition, the report noted that from December 2020 to the end of 2023, the public debt ratio decreased by 39 percentage points.

“The reasons for this proposal were attributed to the expectation of ongoing uncertainty in the global economy throughout 2024,” it is stated.

Additionally, according to the PDMO, the majority of the Republic of Cyprus’ short-term debt, amounting to €11.62 billion, approximately 51 per cent of the total debt, is distributed over the period 2024-2028.

During this period, an amount of €6.6 billion, about 57 per cent of the total debt, maturing during this period relates to the repayment of European bonds, while €4.6 billion, approximately 40 per cent, concerns loan repayments during this period.

According to the PDMO, 2028 represents the year with the highest annual debt maturity concentration, amounting to €2.8 billion, of which €1.5 billion, approximately 53 per cent, relates to the repayment of EMTN bonds and €1.29 billion, approximately 46 per cent to loan repayments, largely related to the repayment of the fourth instalment of the loan received from the European Stability Mechanism during the 2013 crisis.

However, the PDMO said that “in general, the debt maturity schedule is distributed in a manner that ensures comfortable servicing, and debt maturity is at manageable levels.”

Nevertheless, the PDMO noted that its intention for the coming years is to issue at least one benchmark bond (EMTN) per year, raising funds ranging between €1-1.5 billion to cover the government’s financing needs.

“In order to further smooth the debt repayment schedule, emphasis will be placed on issuing longer-dated securities, as market conditions and the new interest rate environment are favourable,” it is stated.

The average remaining maturity of tradable debt recorded a slight increase, approaching eight years at the end of 2023, surpassing the medium-term debt management strategy target of seven years.

What is more, according to the PDMO, surpluses of the Social Insurance Fund (included in the central government) “are invested in the government annually”.

At the end of 2023, the amount of investments by the Social Insurance Fund in the form of deposits amounted to €10.61 billion, recording an increase of 10.4 per cent compared to the amount of investments in the previous year, which was €9.61 billion.

However, the PDMO clarified that the intra-governmental relationship between the government and the Social Insurance Fund and other funds under management, on a consolidated basis, “is simply a statistical and accounting methodology”.