Finance Minister Makis Keravnos and Central Bank Governor Christodoulos Patsalides delivered a strong message of fiscal discipline at the start of parliamentary discussions on the 2027 state budget, stressing the importance of maintaining budget surpluses and reducing public debt.
Focus on spending restraint
Patsalides highlighted the need to contain rigid public expenditure, including the state payroll, arguing that resources should be directed towards investments and reforms that boost productivity and competitiveness.
Keravnos, meanwhile, presented figures showing a gradual reduction in personnel costs as a share of total expenditure. According to the budget, staff costs will account for 26.1% of total spending in 2027, down from 28% in 2025.
The number of civil service posts is also set to decline for a third consecutive year, with 51 positions being eliminated. The education sector is the exception, reflecting growing staffing needs in public schools.
On rising energy costs, Keravnos said Cyprus continues to seek EU exemptions that would allow further reductions in energy-related taxes.
Strong growth, but risks remain
Patsalides described the Cypriot economy as resilient but exposed to growing external risks.
He projected annual economic growth of around 3% in the coming years, arguing that healthy public finances enhance the country's ability to withstand future shocks.
According to figures presented to MPs:
- The general government surplus reached 4.1% of GDP during the first eight months of 2026.
- Public debt stood at about 50% of GDP at the end of August.
The governor also warned about inflationary pressures. Inflation in Cyprus reached 5.2% in September, compared with 3.8% in the eurozone, while the Central Bank forecasts average inflation of 3.3% for 2026.
He cautioned that fiscal policy should avoid further stimulating domestic demand, which could add to inflation.
Call for greater EU flexibility
Keravnos described the budget as people-centred, noting increased social spending and measures aimed at easing cost-of-living pressures.
However, he acknowledged that regional conflicts and the energy crisis continue to weigh on households, businesses and the wider European economy.
The minister said he raised the issue of fiscal flexibility at both the Eurogroup and ECOFIN, urging the European Commission to give member states greater room to support citizens and businesses.
He argued that spending rules should better reflect the impact of inflation, particularly when government costs rise because of higher energy prices.
Economic outlook
The Ministry of Finance forecasts:
- 3.1% economic growth in 2026.
- 2.9% growth in 2027.
- Medium-term growth of around 3%, above the eurozone average.
Unemployment is expected to fall from 4.4% in 2025 to 3.8%.
Inflation is projected at:
- 4% in 2026.
- 2.5% in 2027.
- 2% in both 2028 and 2029.
