Cyprus Fiscal Council warns public wage bill strains state budget despite resilient economy
The Cyprus Fiscal Council has highlighted the public wage bill as a significant strain on the state budget, even as it acknowledges the economy's broad resilience. Government expenditure continues to exceed EU limits, with compensation for public sector employees reaching around €4.1 billion last year, nearly 12% of GDP. The public workforce increased from 66,287 in 2022 to 71,675 in 2025, with local authorities experiencing an even sharper rise in staff numbers.
Economist Ioannis Tirkides noted that the wage bill now accounts for close to 30% of government expenditure, surpassing EU averages and limiting investment in infrastructure and the green transition. A primary driver behind the rising costs is the cost-of-living allowance (CoLA), which increased significantly and is scheduled to grow further. The Fiscal Council recommends capping CoLA as a fixed amount and linking future pay raises to productivity to relieve budget rigidity.
The report also criticized the limited implementation of development budgets and ineffective local government reforms, which saw rising staff costs without spending rationalization. It warned against loosening fiscal policy ahead of elections and urged for a binding three-year fiscal framework, tighter public investment evaluation, and recruitment controls based on operational needs to ensure fiscal stability amidst demographic challenges.
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