Cyprus Fiscal Council warns of economic risks and rising public wage costs

The Cyprus Fiscal Council (CFC) issued a stark warning regarding significant fiscal risks threatening the nation's economic stability in its 2026 interim report. During a press conference, Council President Andreas Charalambous highlighted that geopolitical instability, particularly in the Middle East, continues to drive up energy costs and poses long-term pressures on the economy. Significant focus is placed on major infrastructure projects, including the Great Sea Interconnector between Israel, Cyprus, and Greece, and the terminal at Vasiliko, which require prudent management to avoid fiscal strain.

Furthermore, the report highlights an explosive increase in public sector payroll, which grew from €3.17 billion in 2022 to €4.16 billion in 2025—a 38% cumulative rise. As a percentage of GDP, this expenditure climbed from 10.7% to 11.4%. The Council identified the current system of Automatic Cost of Living Allowance (COLA) as a key source of wage rigidity, noting that COLA expenditures surged from €42 million to €199 million over the same period. The CFC urges the government to restrict horizontal salary increases and revise the COLA mechanism to ensure long-term fiscal discipline.