World Bank: Northern Cyprus finances in crisis

The World Bank has published the report “Turkish Cypriot Economy Beyond the Bottlenecks: Promoting Economic Integration”, giving a negative assessment of the state of public finances in Northern Cyprus.

According to the report, public spending is growing significantly faster than revenues. While in 2023 it amounted to 29.2% of GDP, in 2024 it reached 35.4%. The main reasons cited are the increase in salary and compensation payments, as well as a rise in current and investment expenses.

Against this backdrop, the budget deficit grew from 0.9% of GDP in 2023 to 4.1% in 2024. Revenues excluding grants also increased — from 33 billion to 64 billion Turkish lira — due to higher wages in the public sector, growth in income tax, and proceeds from foreign trade.

However, the tax structure shifted towards indirect levies: their share rose from 22.9% to 25.5%, while direct taxes fell from 40.6% to 37.4%, which, according to experts, worsens tax fairness.

The deficit was covered by profits from the Central Bank, issuance of domestic loans, and short-term credits from the Central Bank. As a result, the nominal volume of spending in 2024 exceeded 85 billion lira — more than double the previous year.

The World Bank warns that the current trend undermines fiscal sustainability, increases debt burden, and poses serious risks for the future of Northern Cyprus’s economy.