Filenews 26 October 2025 - by Eleftheria Paizanou
The obligations of the Municipalities to the state and the banks are unbearable and if the actuarial deficit in their coffers is added to them, then the problem is greater. And in case something goes wrong, the state and by extension the citizens will be asked to pay. That is, the state will pay €800 million to cover the obligations of local authorities.
Specifically, the long-term liabilities of the twenty new Municipalities to the government and credit institutions amount to €598 million.
In addition, the actuarial deficit of their funds amounts to a total amount of €201 million. In fact, most of the debt comes mainly from the Municipalities with the largest population.
As indicated in the Financial Risks report, in the event that a municipality is unable to cope with its obligations to its employees, then the state may be called upon to cover these obligations.
However, the financial burdens left by the previous municipalities before the implementation of the reform create obstacles in the new municipalities. It is worth mentioning that from 2024 to 2026, the state sponsorship that the municipalities have received or will receive amounts to €339 million. That is, in 2024, they received a sponsorship of €105 million while this year and next year it is €117 million per year. It is noted that since the reform, the sponsorship to the municipalities has increased by €47 million in relation to the sponsorship they received under the previous regime.
Under the new circumstances, the state grant is offset against the overdue debts of the municipalities to the various government departments and district administrations, as well as to the EAC, the Water Development Department, the Department of Public Works, the Department of Town Planning and Housing, as well as the Department of Lands and Surveys.
It is recalled that the Local Government reform was implemented in July 2024, with the aim of saving financial resources. Before the reform there were 39 Municipalities, 9 of which were occupied and 487 Community Councils, of which 137 were occupied. Since July last year, the number of municipalities in free areas has been reduced to 20, while the amount of state sponsorship received is determined on the basis of population, area, residential density, as well as other criteria.
According to government plans, the five municipalities that will receive the largest sponsorship are: Nicosia €22.55 million, Limassol €17.03 million, Larnaca €10.09 million, Strovolos €9.28 million and Paphos €6.65 million.
Almost 3,500 municipal employees
The 20 Municipalities employ a total of 3,477 employees, with the payroll covering about 30% of their total expenses. The rest of their operating expenses cover about 28%. Therefore, personnel costs and operating costs constitute the most important percentage of the expenses of the Municipalities.
Operating expenses also include expenses related to the provision of services to citizens (cleaning, social services, cultural events, etc.). By expanding their role and responsibilities, they will be able to offer more and better quality services to the citizen, and to participate actively in economic, social and cultural development.
Average salaries in Municipalities
Based on the categorization of Municipalities based on their population, the average salary of employees of local authorities with a population of less than 20,000 is €35,033. Also for this category, the state sponsorship constitutes 39.35% of the total revenue, while the expenses to personnel from the total expenses correspond to 20.18%.
In addition, Municipalities with a population of 20,001 to 40,000, the average annual salary of employees is €28,241 with personnel costs accounting for 21.13% of total expenses.
At the same time, the amount of state sponsorship they receive from the total revenues corresponds to 28.37%. In addition, Municipalities with a population of more than 40,000 inhabitants, the average annual salary of employees is around €38,631.
Personnel costs correspond to 38.21% of the total expenses. At the same time, the state sponsorship received by this category of Municipalities corresponds to 34.95%. Every year, the budgets of the Municipalities are jointly approved by the Ministers of Interior and Finance and the budgets of the Community Councils by the Minister of the Interior (District Officers) and the Minister of Finance.
Risk Mitigation Plan
The Ministries of Finance and Interior in recent years have been taking measures to mitigate the fiscal risks arising from local authorities. In fact, they have also defined a specific plan to stop them, taking a series of specific measures. According to the Fiscal Risk Report accompanying the 2026 state budget, the measures taken are as follows:
• One of the purposes of the local government reform is that local authorities should be able to acquire financial and administrative autonomy, and thus a lower degree of dependence on the central state.
• The reduction of operating costs and the limitation of the increase in the personnel costs of local authorities will lead to the improvement of their finances.
• The intensification of actions for the collection of arrears to the Municipalities and the provision of additional tools (legislative) to improve collectability, would contribute to the mitigation of fiscal risks.
• The development and implementation of a medium and long-term strategic planning for a more rational operation of local authorities, according to the financial capabilities of each municipality. Each municipality must prepare and implement a realistic/rational budget within its financial capabilities.
• In order to fully finance pension funds and eliminate deficits, municipalities should, through long-term planning, finance their actuarial deficit in a way that is manageable and financially viable. Actuarial studies should also be updated within reasonable intervals so that they are informed about the differentiation of the amount of their contribution.
It is worth noting that since December 2022, the new legislation for the Special Pension Benefit Payment Fund, established under Article 10 of the Professional Pension Benefits Scheme for Employees of the State Service and the Wider Public Sector, including Local Government Authorities, has been in force, which in the long run is expected to essentially eliminate the risk.
