Filenews 11 October 2025 - by Eleftheria Paizanou
The open fronts of the ATA, the electrical interconnection (GSI) and the terminal in Vasilikos are considered potential risks for the state and the public finances in 2026, with the visible possibility that they will turn the Government's economic planning upside down, causing uncertainty.
The Fiscal Council, in a letter sent by its president, Michalis Persianis, to the Minister of Finance Makis Keravnos on the macroeconomic and fiscal forecasts for the 2026 budget, refers to the uncertainty in the estimates and forecasts arising from the international environment as well as from domestic policy choices.
He points out in particular that the uncertainty in the Cypriot economy may arise from the modification in tax and pension data, the decisions on the ATA, the differentiation in VAT, the expenses under the SAFE tool, the decisions in relation to the GSI and the Royal, the compensation for natural disasters and from the political announcements without a prior costing.
"This uncertainty creates particularly increased risks, both for the economy macroscopically and for public finances," adds the president of the Fiscal Council. It also indicates that it is important for the Treasury to maintain the current conservative fiscal stance.
Concern about increased spending
At the same time, the Fiscal Council expresses its concern in relation to the increase in expenditures, including net primary expenditures, as, as it argues, their reversal seems to be not politically and macroeconomically easy.
"We also encourage long-term policies to address the structural weaknesses of the economy, which we have repeatedly noted in our previous reports. We reiterate our concern about the significant intra-government liabilities of the Central Government vis-à-vis the Social Security Fund, anticipating its gradual address, provided that you have succeeded in reducing the public debt below the 60% threshold," adds Mr. Persianis.
At the same time, it notes that, despite the high risks due to exogenous and domestic data, the assumptions for the 2026 budget are within realistic limits and with a reduced risk of negative deviation.
The Fiscal Council recommends the continuation of the careful management of public finances, emphasizing the maintenance of primary surpluses to shield the economy from negative developments. "We agree with your statement that "the chances of deviation from the baseline scenario" are downwards for GDP, and "upwards" for inflation, which is why we insist on maintaining a conservative stance, especially with regard to government spending, especially inelastic spending. As for inelastic spending, we reiterate the concern that they trap the executive in a pro-cyclical fiscal policy," he underlines
Credit for debt reduction
The President of the Council gives credit for achieving the goal of reducing public debt to below 60% of GDP, which, as he points out, shields Democracy and strengthens the country's fiscal and macroeconomic resilience.
At the same time, Mr. Persianis emphasizes the need to maintain the target until 2028, as the course of net primary expenditure remains precarious and the possibility of exceeding the limits is extremely likely.
The President of the Fiscal Council attributes this assessment to the fact that the existing calculations cannot yet include additional expenses, which will affect the total amount for the four-year period. "These also include moves such as the agreement on the ATA (especially for 2027 and 2028), contingent obligations, but also additional sponsorships and subsidies under consideration, as well as energy-related costs that remain unclear," he underlines.
In addition, he attributes it to the fact that some spending reductions in the previous budgets have either been reversed, or carry a high risk of implementation due to political circumstances, adding that it is not clear whether to reduce domestic transfers and subsidies in 2027-2028, which are considered pre-election years.
He states that the increase in state revenues is more realistic next year, while in relation to the decision not to issue new debt, he notes that it should not be a standard practice and the existing strategy should not be revised as the state's access to international markets becomes more difficult, it should be revised as the state's access to international markets becomes more difficult.
"The course of the economy remains very satisfactory and we believe that, if political data do not change (such as, for example, the adoption of a universal ATA), it will continue to show broad-based growth dynamics, with domestic demand slowing down, but driving GDP growth to a significant extent," he stresses. In conclusion, he emphasizes that in 2026 inflation will increase, which is why fiscal surpluses should be maintained and public debt should remain below 60%.
