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 said on Monday 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
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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
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The 2026 budget, excluding debt servicing, is projected at pound 10.7 billion. Total revenues are estimated at pound 12.68 billion, while expenditures amount to pound 10.78 billion. Debt repayments of pound 2.27 billion and interest payments of pound 665 million bring total spending to pound 13.72 billion.
Revenue includes pound 4.05 billion from direct taxation, pound 4.55 billion from indirect taxation, pound 683 million from sales of goods and services, pound 237 million from rents, royalties and other proceeds, and pound 100.4 million from transfers. Financial revenues are projected at pound 2.88 billion.
Expenditure priorities
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Debt servicing takes up the largest share, accounting for 21% of expenditures. This includes pound 2.1 billion in foreign debt repayments, pound 71 million in domestic debt repayments, and pound 665 million in interest.
Operating expenditure rises 11.8% compared with 2025, reaching pound 3.77 billion, or 11.5% of the budget. The increase reflects higher spending on water supply (pound 26.1 million), defence and policing (pound 31.1 million), preparations for Cyprus’ EU Presidency in 2026 (pound 6 million), and staff training (pound 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 pound 2.3 billion. Contributions to the Social Insurance Fund and the national health system (GeSY) total pound 1.6 billion, up pound 163.4 million. Other transfers include pound 294.1 million to the EU budget, pound 231.6 million in grants to public and private sector organisations including universities, and pound 147 million to local authorities.
Capital expenditure declines by 2.6% to pound 580 million.
The Finance Ministry also outlined major infrastructure projects budgeted for 2026-2028, with total costs of pound 1.1 billion. The most expensive include the new Cyprus Museum (pound 145.7 million), the ‘Ktizo’ housing scheme (pound 130 million), the Deneia-Akaki-Astromeritis road (pound 129.7 million), and the Nicosia Courthouse complex (pound 119 million).