The government is cutting civil service positions, but staffing expenditure continues to climb.
While the government is cutting civil service positions in an effort to contain the public-sector wage bill, the picture presented by staffing expenditure tells a different story.
Spending on public-sector staff and pensions appears set to rise by 4.1%, rather than the 1.2% suggested by an initial reading of the 2027 state budget submitted to Parliament two days ago.
The increases will not stop there, with the budget forecasting another €257 million rise in total staff and pension costs in 2028.
According to the 2027 budget, expenditure on staff and pensions will increase from €3.71 billion to €3.753 billion—a difference of €43 million, or 1.2%.
However, the 2026 budget included an exceptional, one-off expense of €110 million in the form of a retrospective contribution to the occupational pension scheme for civil servants.
Only €7 million has been budgeted for the same expense in 2027. Once this is taken into account, the calculation should begin from a base of €3.6 billion in 2026 and rise to €3.746 billion in 2027.
That produces an increase of €146 million, or 4.1%, rather than the 1.2% that appears at first glance. The figure can easily be compared with the inflation rate the government expects for this year.
It is also worth noting that direct staff remuneration will increase by about €98 million in the 2027 budget.
The budget forecasts a further €257 million increase in total staff and pension costs in 2028, indicating that personnel expenditure will continue to grow.
The Fiscal Council’s latest report also identifies an upward trend in public-sector staff costs.
According to the council, the general government wage bill rose from €3.17 billion in 2022 to €4.16 billion in 2025, a cumulative increase of approximately 38%.
As a percentage of gross domestic product, it increased from 10.7% in 2022 to 11.4% in 2025. The council notes that it remains one of the largest and least flexible categories of public spending.
This suggests the rise in the wage bill is permanent rather than temporary. It also highlights the need to limit across-the-board salary increases and closely monitor the long-term effect of the cost-of-living allowance and growing public-sector employment on state finances.
The council points out that the cost-of-living allowance, known in Cyprus as ATA, makes the public-sector wage bill more rigid.
Spending on ATA increased from €42 million in 2022 to €199 million in 2025, rising from 3.5% to 15.3% of the basic salaries of government employees. This trend is expected to strengthen further, as the 2027 budget also confirms.
Under Finance Ministry Circular 1780, the percentage of ATA paid increased from 66.7% at the end of 2025 to 80% between January and June 2026. It then rose to 90% for the period from July 2026 to June 2027.
This change reduces wage flexibility, including in the public sector, where salaries are already higher than those in the private sector, particularly for some categories of unskilled workers.
Effort to reduce staff numbers
According to the 2027 budget, the government plans to create 386 positions and abolish 437, producing a net reduction of 51 posts.
The abolished positions include 66 permanent hourly-paid government jobs, according to the Finance Ministry.
The ministry says efforts to contain the public-sector wage bill are continuing, including measures to reduce employment. It says the number of civil servants fell by 2,242 between 2012 and 2026.
More specifically, the ministry lists 19,529 employees on Jan. 1, 2012, compared with 17,287 on June 30, 2026.
The latter figure includes approximately 3,804 employees seconded to the State Health Services Organisation, or OKYPY.
Over the same period, however, employment in education increased by 3,342 people.
The spending picture
Total spending under the 2027 state budget, including loan repayments, interest, and investments, amounts to €14.4 billion.
This includes €4.17 billion in Consolidated Fund expenditure, €9.07 billion in regular spending and €1.15 billion in development expenditure.
Revenue, excluding financial flows, is expected to reach €10.82 billion, compared with revised revenue of €10.7 billion in 2026—an increase of 1.1%.
Expenditure, excluding loan repayments and investments, is expected to increase by 4.5% from the previous year. It is budgeted at €11.87 billion for 2027, compared with €11.35 billion in 2026.
In addition to the 4.1% increase in staff costs, operating expenditure is forecast to rise by approximately 15.8% in 2027, reaching €1.86 billion from €1.6 billion in 2026.
Transfer payments are expected to increase by approximately 5.9%, from €4.24 billion in 2026 to €4.49 billion in 2027.
Capital expenditure is projected to rise by 0.7%, reaching €586.5 million compared with €582.4 million in 2026.
Meanwhile, EU co-funded projects and schemes include measures financed through the Solidarity and Home Affairs Funds, the Rural Development Programme and the Structural Funds, along with other projects and programmes.
Spending on these projects is expected to remain close to €464 million, although this represents a 15.2% reduction to €463.9 million in 2027 from €546.8 million in 2026.
The cost of servicing the public debt—including interest and repayments on domestic and foreign loans—is forecast to increase by 10.1% in 2027.
It is expected to reach €3.23 billion, compared with €2.93 billion in 2026.
Spending on public-sector staff and pensions appears set to rise by 4.1%, rather than the 1.2% suggested by an initial reading of the 2027 state budget submitted to Parliament two days ago.
The increases will not stop there, with the budget forecasting another €257 million rise in total staff and pension costs in 2028.
According to the 2027 budget, expenditure on staff and pensions will increase from €3.71 billion to €3.753 billion—a difference of €43 million, or 1.2%.
However, the 2026 budget included an exceptional, one-off expense of €110 million in the form of a retrospective contribution to the occupational pension scheme for civil servants.
Only €7 million has been budgeted for the same expense in 2027. Once this is taken into account, the calculation should begin from a base of €3.6 billion in 2026 and rise to €3.746 billion in 2027.
That produces an increase of €146 million, or 4.1%, rather than the 1.2% that appears at first glance. The figure can easily be compared with the inflation rate the government expects for this year.
It is also worth noting that direct staff remuneration will increase by about €98 million in the 2027 budget.
The budget forecasts a further €257 million increase in total staff and pension costs in 2028, indicating that personnel expenditure will continue to grow.
The Fiscal Council’s latest report also identifies an upward trend in public-sector staff costs.
According to the council, the general government wage bill rose from €3.17 billion in 2022 to €4.16 billion in 2025, a cumulative increase of approximately 38%.
As a percentage of gross domestic product, it increased from 10.7% in 2022 to 11.4% in 2025. The council notes that it remains one of the largest and least flexible categories of public spending.
This suggests the rise in the wage bill is permanent rather than temporary. It also highlights the need to limit across-the-board salary increases and closely monitor the long-term effect of the cost-of-living allowance and growing public-sector employment on state finances.
The council points out that the cost-of-living allowance, known in Cyprus as ATA, makes the public-sector wage bill more rigid.
Spending on ATA increased from €42 million in 2022 to €199 million in 2025, rising from 3.5% to 15.3% of the basic salaries of government employees. This trend is expected to strengthen further, as the 2027 budget also confirms.
Under Finance Ministry Circular 1780, the percentage of ATA paid increased from 66.7% at the end of 2025 to 80% between January and June 2026. It then rose to 90% for the period from July 2026 to June 2027.
This change reduces wage flexibility, including in the public sector, where salaries are already higher than those in the private sector, particularly for some categories of unskilled workers.
Effort to reduce staff numbers
According to the 2027 budget, the government plans to create 386 positions and abolish 437, producing a net reduction of 51 posts.
The abolished positions include 66 permanent hourly-paid government jobs, according to the Finance Ministry.
The ministry says efforts to contain the public-sector wage bill are continuing, including measures to reduce employment. It says the number of civil servants fell by 2,242 between 2012 and 2026.
More specifically, the ministry lists 19,529 employees on Jan. 1, 2012, compared with 17,287 on June 30, 2026.
The latter figure includes approximately 3,804 employees seconded to the State Health Services Organisation, or OKYPY.
Over the same period, however, employment in education increased by 3,342 people.
The spending picture
Total spending under the 2027 state budget, including loan repayments, interest, and investments, amounts to €14.4 billion.
This includes €4.17 billion in Consolidated Fund expenditure, €9.07 billion in regular spending and €1.15 billion in development expenditure.
Revenue, excluding financial flows, is expected to reach €10.82 billion, compared with revised revenue of €10.7 billion in 2026—an increase of 1.1%.
Expenditure, excluding loan repayments and investments, is expected to increase by 4.5% from the previous year. It is budgeted at €11.87 billion for 2027, compared with €11.35 billion in 2026.
In addition to the 4.1% increase in staff costs, operating expenditure is forecast to rise by approximately 15.8% in 2027, reaching €1.86 billion from €1.6 billion in 2026.
Transfer payments are expected to increase by approximately 5.9%, from €4.24 billion in 2026 to €4.49 billion in 2027.
Capital expenditure is projected to rise by 0.7%, reaching €586.5 million compared with €582.4 million in 2026.
Meanwhile, EU co-funded projects and schemes include measures financed through the Solidarity and Home Affairs Funds, the Rural Development Programme and the Structural Funds, along with other projects and programmes.
Spending on these projects is expected to remain close to €464 million, although this represents a 15.2% reduction to €463.9 million in 2027 from €546.8 million in 2026.
The cost of servicing the public debt—including interest and repayments on domestic and foreign loans—is forecast to increase by 10.1% in 2027.
It is expected to reach €3.23 billion, compared with €2.93 billion in 2026.
