**Title: Cyprus Investment Position Deteriorates as External Debt Rises by €1.5 Billion**
Cyprus is experiencing a notable decline in its investment position, as revealed by preliminary external sector data released by the Central Bank of Cyprus (CBC) on Tuesday. The report highlights a widening current account deficit and a significant increase in external debt during the first quarter of 2026.
The current account deficit expanded to €1.27 billion in the first quarter of 2026, up from €1.01 billion in the same period of 2025. This represents a deterioration of €263 million year-on-year. When adjusted to exclude special purpose entities (SPEs), the current account deficit was reported at €1.37 billion, compared to €1.12 billion in the first quarter of the previous year.
The CBC attributed the widening deficit primarily to a larger secondary income deficit and a decrease in net exports of services, particularly in sectors such as financial services, telecommunications, and computer and information services. However, there were some mitigating factors; the goods balance showed improvement, and there was a reduction in the primary income deficit, which somewhat offset the negative trends.
Despite the deteriorating current account position, Cyprus recorded net financial inflows of €1.14 billion during the first quarter, an increase from the previous year. This growth was driven by a smaller net outflow in portfolio investments and stronger net inflows in other investment categories.
The international investment position (IIP) of Cyprus also showed signs of weakening. By the end of the first quarter, the net liability position widened to €28.31 billion, up from €28.17 billion at the end of 2025. When adjusted for SPEs, the net liability position increased to €10.03 billion, compared to €8.93 billion in the previous quarter.
Cyprus' gross external debt rose to €226.66 billion at the end of the first quarter, an increase from €225.19 billion three months earlier. Conversely, external debt assets slightly decreased to €223.53 billion, down from €223.62 billion at the end of the previous quarter. Consequently, net external debt increased by €1.57 billion, reaching €3.14 billion during the first quarter. After adjusting for the impact of SPEs, gross external debt was reported at €59.94 billion, up from €59.18 billion at the end of 2025. The adjusted measure for net external debt also saw an increase, moving to minus €30.46 billion from minus €30.95 billion in the previous quarter.
The CBC noted that Cyprus recorded bilateral current account surpluses with Germany and Russia during this period. In contrast, the country faced bilateral current account deficits with Greece, the United Kingdom, and the United States. Notably, the current account deficits with both the European Union and the euro area narrowed during the reporting period.
The data reflects ongoing economic challenges for Cyprus as it navigates a complex external environment. The increase in external debt and the widening current account deficit may raise concerns about the sustainability of the country's economic position moving forward. As the government and policymakers assess these developments, the focus will likely be on strategies to enhance economic resilience and address the underlying issues contributing to the deterioration of the investment position.