In fact, the high private debt of 236% in Cyprus relative to the euro area average of  4/5  BIS - Central bankers' speeches  140% and the European Commission's threshold of 133%, combined with the high percentage of loans in Cyprus with floating interest rate, makes them particularly sensitive to the higher interest rate era that we are entering. At the current juncture, the prudent CBC supervisory Debt-Service-to-Income ratio (DSTI) tool, defined as a household's total monthly debt payments divided by its monthly net disposable income that is in place in Cyprus, is expected to somewhat mitigate the negative impact of higher lending rates. Nevertheless, extra vigilance and concerted action is required at all levels to address these debt risks and minimise any crowding out effects. Let me conclude. Debt, both private and public, is essential for any economy as it is one of the main sources to finance vital growth components, such as investment and consumption. Excessively high debt however, both public and private, has a negative impact on a country's growth rate. In most cases, the impact becomes more pronounced as debt accumulates and may also lead to financial stability issues. Even though many efforts have been made in recent years by international and national regulatory bodies to implement a more sound financial architecture and to strengthen financial system regulation and oversight, new vulnerabilities, such as the pandemic crisis and the war in Ukraine, have increased the risks of rising private and public debt.

This is because structural reforms are the policy levers aimed at boosting the supply side of the economy and ameliorate the framework in which businesses and people operate. By tackling obstacles to the efficient production and provision of goods and services, structural reforms can contribute to higher productivity, investment and employment, thus contributing to higher incomes and helping to tackle rising levels of debt. Three specific examples of Government structural reforms include the following: First: The implementation of measures that improve business conditions, promote better allocation of resources, and strengthen market competition are essential policy actions to boost productivity and hence GDP growth. In the area of product markets, a more competitive and business-friendly environment increases incentives of firms to innovate, and invest, in human and physical capital. A relevant example includes the transposition of the EU Services Directive, aiming at lifting restrictions on cross-border providers and removing limits to competition. Unfortunately, the latest periodic assessment by the Commission of the legal and administrative barriers of the EU, which was conducted in April 2021, points to an overall slow speed of barrier removal over 2006 to 2017. Second: Labour market reforms, such as the implementation of Active Labour Market Policies, could minimise labour shortages and labour mismatches, potentially helping to contain both private and public debt. Wage rigidities in Europe have been identified in the past to be important impediments to market clearing and have been linked to high and persistent unemployment. Typically, high unemployment rates are related to bad debt, that is Non Performing Loans.