Cyprus’ 2026 state budget foresees higher operating, development and social expenditures, while maintaining a strong focus on reducing public debt, with 21% of expenditure earmarked for debt servicing, Finance Minister Makis Keravnos has said.
He was speaking on Monday, 30 September after presenting the draft budget to the Cabinet.
Keravnos described the 2026 budget as “balanced, growth-oriented, with a strong emphasis on social cohesion and social policy.”
Macroeconomic outlook
According to the baseline macroeconomic scenario, Cyprus’ medium-term economic prospects remain positive, though subject to considerable uncertainty. GDP growth is projected at 3.1% in both 2025 and 2026, followed by 3% in 2027 and 2.9% in 2028.
Inflation is estimated at just 0.2% in 2025, rising to 2.5% in 2026 before easing to 2% in 2027–2028. Unemployment is expected to remain stable at 4.6% in 2025–2027, edging down to 4.5% in 2028.
The fiscal balance is projected to remain in surplus at 3.7% of GDP in 2025, compared with 4.3% in 2024, while the primary surplus is estimated at 5% in 2025. For 2026–2028, the fiscal surplus is forecast at around 3.4% of GDP.
Public debt is set to continue its downward trend, falling below the EU’s 60% threshold in 2025 at 57.9%. It is expected to decline further to 52.9% in 2026, 48.7% in 2027, and 43.6% by the end of 2028.
Budget figures
The 2026 budget, excluding debt servicing, is projected at €10.7 billion. Total revenues are estimated at €12.68 billion, while expenditures amount to €10.78 billion. Debt repayments of €2.27 billion and interest payments of €665 million bring total spending to €13.72 billion.
Revenue includes €4.05 billion from direct taxation, €4.55 billion from indirect taxation, €683 million from sales of goods and services, €237 million from rents, royalties and other proceeds, and €100.4 million from transfers. Financial revenues are projected at €2.88 billion.
Expenditure priorities
Debt servicing takes up the largest share, accounting for 21% of expenditures. This includes €2.1 billion in foreign debt repayments, €71 million in domestic debt repayments, and €665 million in interest.
Operating expenditure rises 11.8% compared with 2025, reaching €3.77 billion, or 11.5% of the budget. The increase reflects higher spending on water supply (€26.1 million), defence and policing (€31.1 million), preparations for Cyprus’ EU Presidency in 2026 (€6 million), and staff training (€16.1 million).
Personnel expenditure accounts for 27.5% of the budget. The number of public sector posts will be reduced by 14 for a second consecutive year, with 458 new posts created and 472 abolished. Employment in the public service is down by 1,963 since 2012, or 5,883 if seconded staff at state hospitals are included. In contrast, employment in education has risen by 3,752 since 2012.
Transfers increase by 5.2% year-on-year, making up 30.8% of the budget. Social benefits rise by 6.7% to €2.3 billion. Contributions to the Social Insurance Fund and the national health system (GeSY) total €1.6 billion, up €163.4 million. Other transfers include €294.1 million to the EU budget, €231.6 million in grants to public and private sector organisations including universities, and €147 million to local authorities.
Capital expenditure declines by 2.6% to €580 million.
The Finance Ministry also outlined major infrastructure projects budgeted for 2026–2028, with total costs of €1.1 billion. The most expensive include the new Cyprus Museum (€145.7 million), the “Ktizo” housing scheme (€130 million), the Deneia–Akaki–Astromeritis road (€129.7 million), and the Nicosia Courthouse complex (€119 million).
(Source: CNA)
