• Haircut victims, depositors, shareholders, and bondholders associations are left waiting.
• Strict and frugal spending caps placed on Ministries ahead of the Budget.

The pressure exerted on public finances in recent months, amid intensifying uncertainty in the region due to the prolonged military conflict in Iraq, is forcing the government to tighten its belt and limit expenditures. Within the framework of these current developments, the government is now setting strict priorities for state spending.

According to information obtained by Brief, the Ministry of Finance, via a letter sent to all members of the Council of Ministers, made it clear that ahead of drafting the 2027 state budget, all Ministers must set core, frugal priorities for their respective Ministries. The Ministry of Finance explains in its letter that current conditions demand spending restraint and indicates that each Ministry must map out its priorities to avoid any deviation of public finances from the expenditure ceilings imposed on all EU member states.

Based on these data, the government is leaning toward pushing some of its obligations, such as the payment of the second installment to haircut depositors and bondholders, into 2027. A final decision has not yet been made. The competent Ministry is allowing time for the full picture to clear regarding the ongoing impacts on the hotel industry and livestock farming.

Uncertainty in the economy remains, despite the fact that state revenues have not decreased according to the latest official data. After all, during periods of inflation, the state sees increased revenues due to VAT. Even during energy crises, like the current one, state revenues continue to hold strong.

Nevertheless, the government, through President of the Republic Nikos Christodoulides, had previously committed that the second installment of partial compensation to haircut depositors and bondholders would be paid within 2026. The first installment was distributed in August 2025. In fact, the platform was expected to reopen so that haircut victims who missed the initial deadline could submit their applications for partial compensation.

It is noted that within 2026, the Solidarity Fund Committee, which includes representatives from the three haircut-affected associations (former Laiki Bank depositors, bondholders, and roughly 92,000 former Bank of Cyprus shareholders), has not been convened.

The Board of Directors of the Bank of Cyprus insists on not participating in any compensation effort, even a symbolic one, toward its legacy shareholders. They argue that after March 2013, when the haircut occurred, the Bank acquired new shareholders who bear no legal liability toward the old ones. The response from the former Bank of Cyprus shareholders is that beyond legal obligations, "in life, there is always a moral obligation."

Since the outbreak of the war in Iraq, the state has disbursed tens of millions of euros from public coffers aiming to support households against rising energy costs and assist productive sectors like hotels and livestock farming.

In the livestock sector, which has been battered by foot-and-mouth disease, close to €37 million has been granted so far. Meanwhile, wage subsidies for hotel employees under the "Special Employment Support Scheme in the Hotel Sector" have cost public coffers approximately €6.5 million to date.

Brief's information notes that a proposal might be submitted to the Council of Ministers for an additional one million euros. However, some economic bodies argue that if the government satisfies this new hotelier request, a commitment must be made on their part: if their revenues are not decreased by the end of the year, they should return the entirety of the state subsidy in installments. Notably, there is no such precedent since the establishment of the Republic of Cyprus. No previous government has dared to take such action against a productive sector, obviously considering the political cost.

In another development, the Treasury announced yesterday that total development expenditures reached €1.62 billion by April 2026, with actual implementation standing at €227.3 million.

Revenues at the end of April reached €3.06 billion (representing 28% of the state revenue budget), compared to €2.93 billion (28%) in the corresponding period of 2025. Actual expenditures reached €2.83 billion (a 25% implementation rate), compared to €2.71 billion (24%) in 2025. The revenue increase is mainly attributed to a €0.12 billion rise in direct taxes, while the higher spending implementation is driven by a €0.07 billion increase in transfers and grants.

Source: Brief