"The funding strategy of the National Solidarity Fund must be clarified, and its fiscal cost carefully assessed," the IMF noted in its initial comments following meetings with Cypriot authorities between April 22 and May 4, 2026. The discussions covered recent economic developments, outlooks, and risks stemming from geopolitical instability in the Middle East.

With this reference, the IMF has prioritized the issue of the National Solidarity Fund (NSF). This fund was established to provide partial compensation to individuals and businesses who suffered financial losses during the 2013 banking crisis (haircut depositors, shareholders, and bondholders).

Information from the Ministry of Finance suggests that the IMF, viewing the situation with technocratic rigor, is calling for a "clarification of strategy" and an "evaluation of costs" being disbursed.

The IMF insists that the NSF operate with a long-term funding roadmap. Technocrats emphasized that when compensations are decided in a fragmented manner—without "locked-in" revenues to cover them—the state effectively assumes an indirect debt. The concern is that if the Fund’s assets are exhausted, the burden will fall on the state budget. In such a scenario, the "bill" would be paid by the taxpayer through new taxes or cuts to social benefits.

It is noted that over the last decade, Cyprus has made significant efforts to clear its name in international markets and reduce its public debt. If the state commits beyond its means, rating agencies and foreign investors will take notice. Any "fiscal looseness" for the sake of the NSF could undermine credit credibility, leading to less favorable borrowing terms for the entire economy.

However, there are also the citizens who suffered the "haircut" and have been rightfully seeking justice for 13 years. The IMF’s observations, alongside its broader fiscal comments, have put the Ministry on high alert. The total amount of compensation to be paid is not always stable or predetermined. The more vague the criteria for who is entitled to what, the greater the risk for the state to face claims exceeding initial forecasts.

As the Ministry already acknowledges, the Fund cannot operate based on unclear resources. If funding comes directly from the state budget, every euro given as compensation for a past crisis is a euro missing from future investments. The IMF is concerned about this potential liability; even if the cost does not appear in today's deficit, it represents a "hidden bomb" that, if it explodes, could overturn the country’s entire fiscal planning.

Source: Brief