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  • Finance Minister Advocates for 2026 Budget as Future Investment

    Finance Minister Advocates for 2026 Budget as Future Investment

    2026 budget — Finance Minister Makis Keravnos has urged MPs to approve the 2026 state budget, framing it as an investment in the future of Cyprus. Speaking at the House plenum on Thursday, he emphasised the government’s commitment to fostering growth whilst ensuring a balanced approach to development that prioritises people.

    Photo: cyprus-mail.com

    026 budget: Government’s Vision for Economic Growth

    In his address, Keravnos highlighted that the budget is designed to facilitate economic growth that benefits a broad spectrum of the population. He stated, “Our objective is to pursue a policy of economic growth benefiting as many people as possible, without exclusions.” This vision is particularly crucial given the ongoing challenges, including the geopolitical tensions arising from the crisis in Ukraine.

    Resilience Amid Challenges

    Despite any uncertainties, the finance minister expressed confidence in the resilience of the Cyprus economy. He asserted that it would maintain its momentum, projecting strong growth, low unemployment rates, and healthy public finances.

    Upcoming Budget Discussions

    Keravnos delivered his budget speech during the final regular plenary session of the year. The budget will be debated and voted on during an extraordinary session scheduled for December 15 to 17. Ahead of this critical vote, he appealed to MPs to consider the budget as a pivotal investment in the future for citizens and businesses alike.

    Key Financial Figures for 2026

    The proposed 2026 budget outlines primary expenditures totalling €10.7 billion, marking a 5% increase from 2025. Development spending is set to rise by 4.7%, while social spending will see a significant boost of 6.7%.

    • Projected GDP growth for 2026: 3.1%
    • Unemployment rate forecast: 4.6%
    • Expected inflation rate: stabilising around 2%
    • Budget surplus anticipated: 2.9% of GDP
    • Debt to GDP ratio forecast: 50.9%, down from 55.3%

    Funding for Vulnerable Groups

    Over the next three years, from 2026 to 2028, the government plans to allocate approximately €6.82 billion to support vulnerable groups, including students, children, patients, and individuals with special needs. This substantial investment underscores the government’s commitment to social welfare and inclusion.

    Debt Management and Surpluses

    Keravnos noted that maintaining budget surpluses through 2026 should positively influence the government’s financing strategy, ultimately contributing to a decrease in the public debt to GDP ratio. The anticipated reduction surpasses earlier projections, which aimed for a 60% ratio by the end of 2026.

    Utilisation of Recovery Funds

    Regarding the Recovery and Resilience Facility, the minister revealed that Cyprus has already received €568 million across five tranches, indicating a proactive approach to leveraging European funds for national development.

    Public Payroll and Employment Changes

    Concerning the public payroll, it is expected to constitute 27.5% of the total state budget in 2026, a slight decrease from 28% this year. The government also plans to create 611 new positions in the public sector while eliminating 625 roles, signalling a shift in workforce management.

    Tax Reform for Economic Fairness

    Another crucial aspect of the budget discussion is the proposed tax reform, which the administration aims to pass by the end of the year. Keravnos described the new tax system as fairer, designed to reduce the tax burden on households and families with children. This reform is expected to stimulate the middle class, enhance opportunities for women’s employment, and promote home ownership.

    He stated, “It is a new, fairer tax system, which will boost the real economy and the competitiveness of Cypriot businesses while attracting productive and qualitative foreign investment creating well-paying jobs.” This comprehensive approach reflects the government’s commitment to fostering a resilient and inclusive economic environment.

  • Cyprus outlook: S&P Upgrades Cyprus’ Economic Outlook to Positive

    Cyprus outlook: S&P Upgrades Cyprus’ Economic Outlook to Positive

    cyprus outlook — Credit rating agency S&P has upgraded the outlook of Cyprus’ economy from “stable” to “positive”, highlighting a faster-than-expected improvement in external debt ratios.

    • cyprus outlook — Credit rating agency S&P has upgraded the outlook of Cyprus’ economy from “stable” to “positive”, highlighting a faster-than-expected improvement in external debt ratios.

    The island’s credit rating remains at “A-/A-2” for both long-term and short-term debt. S&P noted that the new outlook reflects the expectation that Cyprus will outperform current projections regarding its external position. This anticipated performance is attributed to a more rapid de-escalation of external debt.

    Despite a persistent current account deficit, Cyprus has seen significant net inflows of foreign direct investment. This influx has facilitated a gradual reduction in external debt, prompting S&P to suggest that an upgrade could be possible if leverage continues to decrease at a stronger pace than estimated.

    However, potential risks loom on the horizon. S&P cautioned that any deterioration in the external environment, such as decreased financial activity among trading partners or heightened geopolitical tensions, could exert pressure on the economy, public finances, and banking system.

    The agency’s upgrade of Cyprus’ economic outlook is largely due to expectations of a further strengthening of its external position, driven by ongoing public and private sector deleveraging, alongside resilient services exports. For instance, despite an average deficit exceeding eight per cent of GDP over the past five years, gross external debt continues to decline.

    S&P praised Cyprus’ fiscal performance as impressive, noting that strong economic activity and a high employment rate have bolstered tax revenues and social security contributions. These factors, combined with controlled public spending, have led to sustained surpluses and a continued reduction in public debt.

    Looking ahead, S&P forecasts an average surplus of 3.3 per cent of GDP between 2025 and 2028, with net debt projected to fall to 35 per cent of GDP by 2028, down from 56 per cent last year and 90 per cent in 2019.

    In terms of growth, S&P indicated that strong economic momentum has persisted into the early part of this year, predicting a growth rate of 3.3 per cent for 2023. This growth is expected to be increasingly driven by domestic demand, rising real incomes, and investments from both private and public sectors, especially following a notable rise in tourism and the relocation of technology companies to the island.

    Moreover, Cyprus’ economy has shown resilience against conflicts in Ukraine and the Middle East, with limited exposure to trade tensions between the United States and China. Nevertheless, the slowdown in Europe could pose indirect risks to economic stability.

    President Nikos Christodoulides welcomed the upgrade, stating it marks Cyprus’ entry into a path of enhanced momentum and reflects the consistency and responsibility of the country’s fiscal choices. He emphasised that Cyprus has emerged as a reliable centre for quality investments, leading to reduced borrowing costs, strengthened entrepreneurship, and the creation of well-paid jobs.

    Finance Minister Makis Keravnos echoed these sentiments, asserting that the upgrade demonstrates confidence in the government’s economic policy as recognised by major rating agencies. He remarked that the continuous positive assessments of Cyprus’ economic credibility reflect not just its creditworthiness in international markets but also the dynamic nature of the Cypriot economy in a climate of increased geopolitical risks.

    Keravnos affirmed that the government will persist in its economic policies aimed at fostering stable and sustainable growth, grounded in fiscal discipline and financial sustainability. He underscored the importance of focusing on initiatives that support the populace, particularly underprivileged social classes, through sensitive economic policies.

  • Economists Critique Government’s Tax Plan as Underwhelming

    Economists Critique Government’s Tax Plan as Underwhelming

    Economists have poured cold water on the government’s proposed tax plan, labelling it underwhelming in light of the grand promises made. Despite the government’s assertions that these changes would create a fairer tax system, analysts suggest that the reality for low-income earners is starkly different.

    Photo: cyprus-mail.com

    Tax plan: Government Claims of Reform

    The Cypriot government has touted the upcoming tax overhaul as a ‘flagship project’ aimed at strengthening the middle class and supporting low-income households. Finance Minister Makis Keravnos describes the reform as having a significant social aspect, claiming it will provide relief for families, students, and large households. He emphasised that 55 per cent of employees would see no income tax.

    Photo: cyprus-mail.com

    Legislative Timeline and Structure

    It has been 22 years since the last major revision of the tax regime. The current reform consists of six bills that the government hopes to pass swiftly, aiming for implementation by January 1, 2026. With the state budget bill also requiring attention, Parliament faces a tight deadline to deliberate on these proposed changes.

    Main Features of the Proposed Tax Reform

    The proposed changes include several key adjustments:

    • The tax-free threshold will increase from €19,500 to €20,500.
    • Families will be eligible for tax credits: €1,000 per child (or €2,000 for single-parent households), €1,000 for full-time students, a €1,500 deduction for interest on loans or rent for primary residences, and €1,000 for energy upgrades or electric-vehicle purchases.
    • To qualify for these benefits, families must have an annual income below €80,000, large families below €100,000, and single individuals below €40,000.
    • Tax deductions will extend to insurance premiums for disability and home insurance against natural disasters, allowing deductions of up to €500 per year.
    • The tax-exempt ceiling for retirement payments will rise significantly from €20,000 to €200,000.
    • All individuals aged 25 and over residing in Cyprus will need to file an income tax return, regardless of their income status.
    • The corporate tax rate will increase from 12.5 per cent to 15 per cent.

    Concerns from Economists

    Despite the government’s optimistic portrayal, economists are not convinced of the plan’s efficacy. Marios Christou, an economist from the University of Nicosia, argues that the proposals do not constitute a comprehensive tax reform. He points out that while income tax changes are notable, there is a lack of significant alteration to VAT and that low-income earners will see little benefit from the reforms.

    Christou further critiques the focus on individual rather than family income, noting that someone earning €90,000 with an unemployed spouse would not gain any tax relief from the proposed changes.

    Criticism of Tax Threshold Adjustments

    Many experts, including Savvakis Savvides, express disappointment with the minor increase in the tax-free threshold, viewing the €1,000 rise as insufficient when adjusted for inflation over the past two decades. Savvides believes the threshold should realistically be set above €25,000 to account for economic changes.

    Social Policy vs. Tax Reform

    Critics like Savvides argue that the government’s attempt to intertwine social policy with tax reform is misguided. A straightforward tax regime should not be an instrument for social policy but should instead be clear and universally applicable. He describes the proposed changes as a “complex labyrinth” that introduces unnecessary complications under the guise of social justice.

    Concerns About Political Accountability

    Additionally, Savvides suggests that President Nikos Christodoulides may be using these amendments to deflect criticism regarding his failure to deliver on campaign promises, such as raising the tax threshold to €24,000. This raises questions about the administration’s commitment to genuine reform.

    Economic Implications

    As the government moves forward with its tax plans, economists caution that the proposed changes may not yield the intended economic benefits. The focus on middle-class relief, while neglecting the low-income demographic, could lead to greater economic disparities.

    Ultimately, while the government presents the tax reform as a significant step toward a fairer system, the lack of comprehensive changes and the criticisms from leading economists suggest a more cautious interpretation of its impact.

  • Finance Minister Keravnos Raises Concerns Over Great Sea Interconnector Funding

    Finance Minister Keravnos Raises Concerns Over Great Sea Interconnector Funding

    great sea — Finance Minister Makis Keravnos has voiced significant concerns regarding the funding of the Great Sea Interconnector (GSI) project, citing potential financial risks associated with its implementation. In remarks made following a meeting of the Council of Ministers on Monday, where the 2026 state budget was under consideration, Keravnos highlighted findings from various studies suggesting that the GSI may not be financially sustainable.

    Keravnos stated, “I still think this issue is under discussion. If we pay the money, there is a risk. As I have said, studies suggest that the project is not viable.” His comments reflect a consistent apprehension regarding the project’s feasibility, a sentiment he has expressed on multiple occasions.

    The GSI aims to connect the energy grids of Cyprus, Greece, and Israel, representing a significant step towards regional energy integration. However, the project has faced various challenges, leading to the Cypriot government withholding €25 million requested by Greece’s independent transmission system operator, Admie, to assist with its funding.

    During the budget preparations, Keravnos mentioned that both internal and external risks had been evaluated, with the GSI identified as a notable concern. He emphasised the uncertainty surrounding the final cost of the project, which adds another layer of complexity to funding decisions.

    In a related matter, the Minister addressed the European Commission’s demand for the return of €67 million related to the Vasiliko liquefied natural gas (LNG) terminal, which was never completed. Keravnos assured that the government is actively managing this issue, hinting at potential offsets with future funds. “We are not giving up, we are fighting,” he asserted, indicating a commitment to navigating the financial challenges ahead.

    When pressed by journalists about the possibility of negotiating the demanded amount, Keravnos firmly stated that the figure was not negotiable under any circumstances, reaffirming the government’s position on the matter.

  • Cyprus shipping — Cyprus Shipping: Bridging the Real Economy with Innovative Financing

    Cyprus shipping — Cyprus Shipping: Bridging the Real Economy with Innovative Financing

    cyprus shipping — Cyprus shipping is emerging as a vital nexus where the real economy intersects with innovative financing solutions. With alternative credit becoming one of the fastest-growing segments in the European funds industry, Cyprus is uniquely poised to benefit due to its robust fund framework and status as a prominent ship management centre.

    Photo: financialmirror.com

    The International Monetary Fund (IMF) estimates the global private credit market is now over $2.1 trillion, highlighting the significant appeal for investors looking to connect capital to tangible economic activities through flexible financing tools. This growing interest is reflected in two upcoming major events in Cyprus: Maritime Cyprus 2025, scheduled for October 6-8, and the International Funds Summit in Limassol on November 3.

    Cyprus shipping: Emerging Trends in Private Credit

    Private credit has rapidly expanded in Europe, particularly as banks have scaled back certain lending activities due to regulatory constraints. The European Central Bank acknowledges that private markets are now a vital complement to traditional bank lending within the euro area. This shift is further propelled by easing monetary policies; euro area rates are moderating, resulting in a lower cost of capital for borrowers. Concurrently, the U.S. Federal Reserve has also cut rates, hinting at potential further reductions in 2025, which could influence international investor appetites.

    Cyprus: A Unique Position

    Cyprus stands out in the maritime finance landscape, combining its strengths as a recognised EU fund centre with a leading role in global ship management—accounting for approximately 20% of all third-party ship management globally. This dual identity fosters natural synergies, creating an ideal environment for exploring innovative financing strategies that intersect with the shipping sector.

    Shipping is an inherently capital-intensive industry, reliant on financing for vessels, retrofits, and working capital. Traditionally, banks and export credit agencies have played pivotal roles in providing this funding. However, their influence has waned, giving rise to alternative financing structures like leasing, sale-and-leaseback arrangements, and asset-backed financing. Such solutions offer flexible terms and connect investor capital to real assets, which is increasingly attractive to investors.

    Attraction of Maritime Credit

    For investors, maritime credit presents a unique opportunity to gain exposure to the shipping industry without being directly affected by market fluctuations. Unlike equity investments that are susceptible to the volatility of freight rates and asset values, credit structures focus on contractual cash flows and predictable returns. This stability is particularly appealing to non-shipping investors seeking diversification from the unpredictable nature of shipping equities.

    Risks in the Expanding Landscape

    While the growth of private credit presents significant opportunities, it also introduces certain risks. The European Central Bank has raised concerns regarding issues such as valuation opacity, leverage, and liquidity mismatches within this expanding market. Moreover, geopolitical factors can complicate the landscape. For instance, the U.S. Trade Representative’s recent Section 301 action will implement new port-entry service fees for vessels with Chinese ownership, operation, or built connections, starting in October 2025. Such measures create uncertainties for ships financed through Chinese leasing structures, underscoring the importance of diversified funding sources.

    A Strategic Moment for Cyprus

    The rise of alternative credit is actively reshaping Europe’s funds industry. Shipping, with its tangible assets and global relevance, exemplifies how real-economy sectors can harmonise with innovative financing strategies. As Maritime Cyprus 2025 and the Funds Summit approach, Cyprus has a timely opportunity to leverage its dual strengths as both a fund jurisdiction and a maritime hub. The next chapter in Europe’s funds industry will depend on how effectively managers can link innovative financing with the needs of the real economy. With its maritime heritage and robust fund architecture, Cyprus is well-positioned to anchor this wave of change.