economy. on a similar note, domestic household debt decreased to 79 % in 2022q2 from 131 % in 2015q1. despite this significant reduction, the domestic non - financial private debt ratio is still relatively high compared with an average of 140 % for the euro area. both households and non - financial corporations'debt exhibit a passive deleveraging behaviour, given that their decline is mainly driven by increases in nominal gdp, known as a denominator effect. today, in an economic environment of high inflation, high interest rates and weakened growth prospects, the risks for a deterioration in asset quality leading to even higher private debt levels and a higher crowding out effect are considered to be on the upside. 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. nevertheless, crises create opportunities for fixing policies and addressing structural issues. policy makers have an opportunity to enact all the necessary reforms in order to lay the foundations of a more stable and prosperous future in the presence of today's overlapping crises. 5

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. therefore, such labour market reforms can help with containing the level of private and public debt by increasing household incomes via enhanced job creation owing to better matching of job seekers with vacancies. third : an acceleration of fiscal policy reforms such as the enactment of a fiscal responsibility and budgets systems law, so as to ensure medium and long term fiscal sustainability. these stipulate a medium - term orientation as regards budget formulation and provide for binding expenditure ceilings. for example, the annual growth rate in total public expenditure must not exceed the growth rate of potential gdp, unless corrective measures on the revenue side are introduced to compensate the higher growth rate of expenditure. in this respect, such policy frameworks can directly tackle the level of public debt by promoting lower public deficits. i will not leave out the banking sector reforms : having effective foreclosure and insolvency frameworks and actively and efficiently managing non performing loans should be encouraged in order to tackle elevated risks related to high levels of private debt. however, the adoption of an improved insolvency framework will not be in a position to achieve its full potential if its application is impaired by inefficiencies in the judicial system. 3 / 5 bis - central bankers'speeches let me now give some remarks on the situation in cyprus.