The organic integration of foreign companies operating in Cyprus with the local economy and society is critical to ensuring that the benefits of investment remain in the country and to reducing the real risk of a significant outflow of investments, the President of the Cyprus Fiscal Council, Michalis Persiannis, told the House of Representatives’ Finance Committee on Monday, during discussions on the Council’s budget.

Responding to a question by AKEL MP Andreas Kafkalias regarding the distribution of economic growth, Mr Persiannis said that “we observe that growth rates and exports are being driven by high-technology companies that are almost exclusively foreign-controlled.”

He noted that, based on Gross National Income (GNI), the increase in the share of wages “is not at all satisfactory,” as between 2018 and 2023 it amounted to 1.7%, rather than the 3.7% indicated by Gross Domestic Product (GDP) figures. “This wage increase is much lower than it appears and is distributed with greater inequality,” he said, adding that statistically, the higher the average wages in an economic sector, the faster they tend to increase.

As he explained, this situation is linked to the absence of strategic management of foreign direct investment (FDI). “The solution is the organic integration of businesses with the Cypriot economy,” he said, noting that this is a model successfully implemented by Ireland. In this way, he explained, “the ease with which foreign companies can leave is reduced,” stressing that the risk of a serious investment outflow is real.

Mr Persiannis pointed to a sharp increase in foreign direct investment, characterised by relatively low capital expenditure and high mobility, which has not been managed in a way that encourages stronger links with the local economy. He said that the war in Ukraine contributed to the relocation of many of these companies to Cyprus and underlined that it would be an opportunity for the country if, after the end of the war, they are persuaded to remain and expand locally.

“In that case, we would have foreign direct investment from Cyprus into Ukraine,” he said, adding that “we need domestic investments abroad” and a strategy that encourages outward expansion without companies abandoning Cyprus as their base.

Responding to questions by MPs Andreas Kafkalias and Marinos Sizopoulos regarding the increase in the state’s debt to the Social Insurance Fund, Mr Persiannis said that the practice of the Ministry of Finance using the Fund’s resources has been in place since the Fund’s establishment.

He stated that the debt is increasing at a rate of approximately €1 billion per year. “We are not violating any rule,” he said. However, he noted that the issue identified by the Fiscal Council is that a massive asset is being accumulated in the Social Insurance Fund, alongside a corresponding massive liability within the Central Government. “It is a fiscal problem, not a problem of the Fund,” he said.

He explained that actuarial studies and projections show that a specific return on the Fund’s surpluses is required to maintain its sustainability. “The most serious issue is the qualitative nature of expenditure,” he said, noting that the Central Government is projected to be in deficit for the period 2026–2028. “This is hidden behind its financing through people’s pensions. There is no incentive for any Minister of Finance to impose discipline and contain operational and inflexible expenditure in order to address a problem that continues to grow,” he said, adding that instead of investments, funds are being spent on “things that do not produce value. Society is being deprived of creative benefit.”