Since 2016, it follows a downward trend with the exception of the second half of 2018, due to the fiscal impact of the measures related to the Cyprus Cooperative Bank, and in 2020 due to the outbreak of the pandemic. The public debt-to-GDP ratio dropped below 90 percent at the end of 2022 due the reopening of the economy and the recovery that followed. However, risks remain elevated due to Russia's war in Ukraine and the deterioration in the global economic environment. At the current juncture, preserving fiscal space is crucial, as government intervention is important to support the digital and green transition, improve competitiveness and promote social cohesion. The NextGenerationEU, which allocates around EUR 1.2 billion to Cyprus in grants and loans, can support these goals and will have a favourable impact on real growth. The successful implementation of structural reforms and the green and digital agenda will be key for transforming our economy to a sustainable and more resilient one. Turning now on the private sector debt in Cyprus, this includes both legacy loans built up prior to the domestic financial crisis in 2013 and new origination loans thereafter, granted to households and non-financial corporations. The granting of new loans after the financial crisis in 2013 was done in adherence to stricter supervisory guidelines and tighter credit standards, and as data shows, the default rate of these new loans is quite low. However, the domestic private debt levels are still burdened with legacy loans that are more difficult to tackle and require special attention.

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.