During Parliament’s debate on the 2026 state budget, Averof Neofytou issued a stark warning about the rapid growth of the public-sector wage bill and the parallel rise in government borrowing from the Social Insurance Fund. These are not routine concerns. They are serious red flags that cannot be ignored. If these trends are not reversed immediately, Cyprus may soon find itself facing a new economic crisis, perhaps even more severe than that of 2013, the repercussions of which the country is still paying for today.
It is well known that one of the deepest and most persistent structural weaknesses of both the Cypriot economy and society is the oversized and highly paid public sector. From the very beginning of the Republic, the state apparatus was built on the wrong foundations. Instead of serving the real needs of society and citizens, it became a mechanism for political patronage, designed to satisfy the clientelist demands of successive governments and party networks. To “accommodate our own people,” we constructed one of the proportionally largest public-sector “armies” in Europe, with salaries and benefits double or triple those of private-sector workers, guaranteed job security and promotions regardless of productivity. Every year, a vast share of the state budget is consumed by this system, draining resources away from other essential needs.
In the 65 years since the founding of the Republic, despite changes in governments and ruling parties, and despite repeated warnings from experts and international organisations, no one has ever dared to touch the swollen public sector, either by reducing its size or by rationalising its privileged pay and benefits. The reason is obvious. No president and no party has been willing to risk the votes of thousands of public-sector employees.
As a result, year after year, the public sector continues to expand and the cost of maintaining it continues to rise. The burden on public finances has become so significant that the state now relies increasingly on borrowing from the Social Insurance Fund to meet its obligations. But this is not a solution. It is an accounting trick. The Social Insurance Fund is not a domestic lending institution. It holds the contributions of workers, employers and the state, intended to finance pensions and other benefits. The more the government borrows from it, the more its long-term sustainability is threatened and the greater the risk that it may one day collapse, leaving workers exposed.
Of course, because such a collapse would not happen tomorrow but over a longer horizon, none of today’s political leaders seem troubled. They have become accustomed to governing with a short-term mindset, ignoring entirely the consequences for future generations and the fate of tomorrow’s citizens.