Nicosia: Cyprus Finance Minister Makis Keravnos presented the 2026 state budget to Parliament’s Finance Committee on Monday, focusing on fiscal stability, social support, and economic growth, while addressing claims around the Great Sea Interconnector (GSI) electricity project.
According to Cyprus News Agency, Keravnos defended his approach to the GSI project, rejecting allegations of withholding crucial studies on its viability. He responded to comments by Greece’s Energy Minister by dismissing reports that he had withheld studies on the Cyprus-Greece-Israel electricity link as ‘fake news.’ Keravnos clarified that all studies were commissioned by the Energy Ministry and were properly submitted and shared with both the Cypriot and former Greek Energy Ministers. He emphasized his openness to projects benefiting the economy but stressed his responsibility to evaluate financial implications and express concerns.
Keravnos questioned claims that the European Commission is advancing the project despite financial sustainability doubts, noting the European Investment Bank’s decision not to finance it. He identified both the GSI and the halted Vasilikos LNG terminal as fiscal risks in the 2026 budget.
Keravnos also highlighted a tax reform package nearing completion, aimed at maintaining state revenues while ensuring fair tax distribution. Proposals include higher thresholds for large families and voluntary exit schemes, alongside targeted support for children, housing, and the green transition. He stressed the importance of fiscal prudence and fairness-enhancing reforms to preserve Cyprus’ ‘A’ credit rating.
Addressing public sector wage costs, Keravnos stated the ongoing expansion is due to ‘many pay scales and automatic increments,’ which are under review. Measures like teleworking and rationalizing transfers and secondments are being considered, with the wage share of total expenditure reduced to 27.5% in the 2026 budget.
The Fiscal Risk Report outlines potential threats to fiscal stability, including liabilities from state guarantees, unsustainable pension funds, and pending court decisions. Concerns are raised about state-owned entities, local authorities, and potential EU fines for non-compliance. Continued financing needs for the State Health Services Organisation and uncertainties surrounding the GSI and Vasiliko projects are identified as significant fiscal risks.
The report also considers unforeseen climate change-related expenditures and broader geopolitical and economic developments affecting the eurozone and Cyprus. Tariffs in international trade relations are noted as additional external risks.
The 2026 budget forecasts revenue of £10.7 billion and expenditure of £13.7 billion, with a primary surplus of 5% of GDP and an overall surplus of 3.9%. Growth is projected at 3.1% for 2026, with inflation at 2.1% and unemployment decreasing to 4.5% by 2028. Public debt is expected to fall to 52.7% of GDP.
Keravnos described the budget as focusing on ‘growth, stability and social cohesion,’ with increased social spending and investments in defence, housing, and disability support. He also emphasized continued investment in infrastructure and green and digital projects.