• Concerns that are troubling the N. Christodoulides government

• The state currently guarantees borrowing – Will the upcoming entity guarantee even a minimum return on the investment of the reserve fund tomorrow?

• Inelastic expenditures combined with unpredictable geopolitical or other crises are a nightmare for economists

Economists speaking to Brief on the occasion of the upcoming pension system reform and specifically regarding the risks highlighted by the Ministry of Finance (MoF) itself concerning the large debt repayment installment to the SIF and the termination of state borrowing from the Fund describe it as an "extremely difficult equation."

They share the concerns outlined in a special MoF study, which was revealed by Brief last Sunday.

Among the risks highlighted, with the termination of borrowing from the SIF and the massive debt repayment installment, is the state's need to issue more debt. If this happens, it will increase borrowing costs and limit flexibility in timing market exits.

Furthermore, any prolonged deterioration of the Central Government's fiscal position poses a risk of causing difficulties in executing the repayment schedule.

The view of the MoF technocratic team examining the potential risks to public finances from the long-term repayment of state debt to the SIF is that, beyond the recorded risks, state borrowing from the Fund's reserve should not be presented as something "bad."

As Brief understands, the Ministry of Finance considers state borrowing to be an "absolutely safe investment for the SIF."

According to arguments formulated in an internal memo, the state pays returns that the Fund might otherwise struggle to obtain from a risky market investment.

In a memo drafted for the purposes of the pension system reform, it is argued that over all these years, the state has utilized borrowing from the SIF for productive investments. These investments, it adds, benefit society and the economy at large, provided there is a stable and responsible economic policy in place.

It is noted that the state guarantees the SIF reserve by law, alongside the payment of pensions. However, the question arises as to whether the new investment policy to be implemented beyond state borrowing will provide a guarantee as credible as that of the Republic of Cyprus (RoC).

Economists speaking to Brief characterize the pension reform as an "extremely difficult equation" and express the hope that the reform effort "does not end up as an election-period flash in the pan and superficial announcements."

They propose that the bill to be submitted to Parliament should include a provision for borrowing, on the condition that such an action serves as a "last resort" in the event of unpredictable, severe crises plaguing the country's economy.

"This can be done, and it could very well align with specific provisions set by the EU regarding fiscal need," they point out.

There is also another school of thought among economists arguing that even if an emergency borrowing clause from the SIF is included, it may still be difficult to pay out hundreds of millions of euros to cover a major surge in government spending.

Specifically, the rise in inelastic expenditures related to the state payroll is, as they note, the greatest real danger to public finances.

"February 2028," they argue, "may find President Christodoulides handing over an economy that is certainly weaker than the one he inherited."

"Already, the growth rate in 2026 will be 40% lower than in 2025, dropping from 3.8% to 2.3%," they add.

Regarding the second pension pillar, provident funds or supplementary pension schemes, the view expressed is that today's youth should not rely on political commitments or the prospects of election campaign declarations.

They point out to young people that their greatest advantage is time. Young people can and must, they note, learn to invest consistently, both for a short-term boost in income and for more dignified pensions.

At the same time, they advise them to avoid what they call "foolish debt," meaning taking out consumer loans or entering into mortgages that will be prohibitive for them and ultimately become permanent debt for most of their lives.

An authoritative source asked to comment on these economists' views stated that the €100 million amount for the annual debt repayment installment to the SIF was determined based on an actuarial study and the fact that the financial capacity currently exists.

"The government," they added, "could not accept something 'set in stone' that would jeopardize the state budget or even the country's investment grade rating."

As indicated by a relevant study by the International Labour Organization (ILO) actuary, the state will be able to repay an annual installment in the range of €100 million to €120 million, based on the capabilities of public finances.

The amount owed to the SIF is expected to be fully repaid over a 40-year horizon, by 2066, assuming no unpredictable domestic or external factors intervene.

Source: Brief