Cyprus Fiscal Council warns of economic risks in 2026 interim report

The Fiscal Council of Cyprus, chaired by Andreas Charalambous, released its 2026 interim report warning that while the economy shows resilience with a 3.8% GDP growth in 2025 and a projected 3% for 2026, significant fiscal risks persist. The Council highlighted that the state payroll has surged by 38% since 2022, reaching €4.16 billion by 2025, largely driven by the automatic cost-of-living allowance (CoLA) and rising public sector employment.

Additional concerns include the fiscal uncertainty surrounding major energy projects like the Vassiliko LNG terminal and the Great Sea Interconnector, as well as the need for a robust second pillar of pension reform. The report also notes that recent tax reforms have marginally worsened social inequality rather than reducing it. Looking forward, the government must exercise strict fiscal discipline, particularly during the upcoming election cycle, to manage mounting public debt interest costs and structural economic dependencies.