Nicosia, Cyprus. The Cyprus Fiscal Council warned on Friday that developments related to the war in Iran could exert significant pressure on the Cypriot economy and urged the government to prepare immediately for potential fallout.
Warning of heightened uncertainty
The council said developments in Iran are likely to create significant pressures on the economy, adding that key parameters remain uncertain and that immediate preparation is required to address potential consequences. It noted that if the conflict continues and evolves into an asymmetric war, responses should account for the high level of uncertainty characterising current data.
Risks across the economy and inflation concerns
The Fiscal Council said uncertainty remains exceptionally high due to the risk of a prolonged conflict and its unpredictable trajectory. It added that emerging risks are spreading across all aspects and industries of the economy.
The council said inflationary pressures are likely to be broad-based and not limited to fuel costs, citing significant increases in commodities, intermediate goods and fertilisers, as well as delays in arrivals. It warned that inflation risks could extend beyond energy into supply chains and essential goods.
Government capacity to respond
The Fiscal Council said the government retains the capacity to respond effectively, citing the country’s improved fiscal position. It added that the current fiscal position allows for the potential adoption of measures due to continued strengthening of liquidity reserves and mainly due to the reduction of public debt.
How should the government prioritise preparations for potential inflationary and supply-chain pressures?
