The Cyprus government is generating large surpluses and accumulating deposits at banks reaching €6.8 billion at the end of September 2025.
And Cyprus banks held cash and cash balances totaling €19.6 billion or nearly 30 per cent of their total assets at the end of June with most of these being liquid assets deposited at the ECB.
Thus, there is the issue of whether the government and banks are wasting and irresponsibly using financial resources with their conduct of financial policies and self-centered behaviour.
Moreover, could the government and banks use their resources more productively and responsibly in order to raise the rate of economic growth and improve the well-being and social conditions of its citizens?
Governments have the responsibility of using their financial resources, mostly derived from taxpayers’ money, to serve their citizens. However, the Cyprus government by generating a string of large surpluses (€1.2 billion surplus or 3.2 per cent of GDP in the first nine months of 2025) is not only taking money out of the economy reducing the purchasing power of households and private businesses, but is failing to use its resources to support essential development and social needs.
On the contrary, the government’s main interest is to selfishly reward itself, by compensating its leaders, advisors, employees and crony supporters handsomely with generous pay and benefits, and doing everything to obtain good credit ratings.
Despite its considerable financial resources, the Cyprus government in recent years has fallen far short in providing adequate social benefits to deserving persons and families with the level of social protection being very low compared with the majority of EU countries.
In fact, government spending on social protection in Cyprus in 2023 amounted to 15.1 per cent of GDP compared with 19.2 per cent for EU members. And for Cyprus, expenditure on social protection per habitant in PPS was estimated at €6,845 in 2023, whereas the average for the EU was €10,708 and €11,518 for the euro area. In this connection, the Cyprus government is most deficient with its relatively low spending on sickness and disability benefits, and on social exclusion and housing.
While the government could and should devote more of its resources to budgeting much higher spending on development projects, the situation with respect to the actual implementation of large-scale infrastructure investments is tainted by corruption and institutional incompetence.
Notwithstanding, it is disappointing that in the proposed budgets for 2026 to 2028 the government allocates lower and lower amounts of funds for capital expenditures, so that by 2028 a mere €865 million or 2.1 per cent of GDP is earmarked for such outlays.
Surely, there is a compelling need for the sound implementation of large-scale public investment projects to try to ensure, among other things, the future affordable and reliable supply of electricity and water.
Why is the government failing to allocate more of its financial resources for the execution of essential development projects? Is it because it is indecisive about completing existing projects such as the ‘Vasilico LNG terminal’ and the ‘Great Sea Interconnector’ and have not formulated plans for alternative infrastructure projects for the energy and other sectors?
It is the view here that the appallingly low rate of effectively implementing development projects and the failure to strategically plan ahead on meeting infrastructure needs reflects a combination of political priorities, corruption and institutional incompetence.
Cyprus governments have repeatedly appointed and upgraded increasing numbers of employees and kept them well-paid in order to gain short-run political support as opposed to undertaking investment projects that only yield longer-term benefits.
In addition, corrupt practices have led to the scandalous award of projects to contractors which do not have the ability to efficiently complete projects, with the Vasiliko LNG project being a prime example.
And conflicts between politicians and particular business entities on how they can irresponsibly benefit themselves from the selection and execution of certain projects appear to be delaying any specification of future plans, at least for the energy sector.
Furthermore, institutional incompetence, most importantly, has contributed to the questionable selection, design and financing of many government projects as well as to failures in choosing the most-qualified contractors to implement particular projects.
For instance, Ministry of Finance officials do not seem to have the expertise to evaluate and determine which projects should be included in government budgets.
Furthermore, once certain projects have been chosen members of the Tenders Review Authority have not demonstrated that they have the expertise and integrity to award contracts to entities which can best efficiently implement such projects.
Thus, there are substantial reasons as to why the Cyprus government needs to reduce its generation of large government surpluses and use its considerable financial resources through spending considerably more on better meeting the infrastructure requirements of the economy and social needs.
However, allocating more money alone to meet these needs is hardly sufficient. Improving effective project implementation, at least, will require strong measures and reforms to combat corruption and greatly enhance institutional competence.
Hence, laws and regulations including those pertaining to government budgets need to be strictly and evenhandedly enforced in order, among other things, to iron out corruption.
In addition, to further reduce irregularities and significantly strengthen institutional competence, government offices and agencies need to be staffed with capable persons rather than with, often incompetent, political loyalists.
Increasing the digitisation of the government services would be important as well for achieving these objectives.
Such policy measures, for example, should lead to the improved targeting and efficient delivery of social benefits to deserving persons.
Also, the better selection, design and efficient implementation of investment projects by government officials and bankers could be enhanced significantly by the employment of personnel that have expertise in project appraisal and financing.
As mentioned repeatedly by this author, Cyprus banks along with the government are hoarding large amounts of financial resources that could be used more productively in supporting the economy and society, particularly through the greater extension of affordable loans to finance businesses and households.
In fact, interest-bearing loans and advances extended by banks amounted to a lowly 38.6 per cent of their total assets at end-June 2025, compared with a much higher 61 per cent for the systemically important banks in the euro area.
Undeniably, this considerable shortfall in credit financing by Cyprus banks is attributable in large part to institutional incompetence and anti-social behaviour, reflected in the unwillingness and inability of bankers to competently and responsibly evaluate loan applications, especially in assessing the economic viability of proposed investment projects.
Accordingly, with both the Cyprus government and banks falling well-short in financing and supporting the effective implementation of worthwhile investment projects, it has been long recommended by economist Savvakis Savvides and this author that an independent development finance bank or agency be set up, staffed with technical experts assigned with the task of appraising and financing large-scale investment projects.
And, notably, Cyprus banks deploy most of their ample liquidity by depositing their excess reserves at the ECB, to “earn” interest income, that in turn has contributed to substantially boosting bank profits to abnormally high levels.
And with such super profits derived in considerable part from non-productive activity and distributed mainly to foreign shareholders there, surely, is a case for levying an extraordinary tax on these profits and using the proceeds for social purposes, such as subsidising bank loans for lower income households.
Furthermore, the sizable, continued surpluses of the Social Security Fund are invested as loans to the central government. These investments essentially constitute workers’ capital and could be used for society also, such as in financing the construction of lower-cost housing.
Finally, if the government and banks can be induced by policy measures to deploy their ample financial resources more fully and productively and become increasingly socially oriented, not only will much faster economic growth be possible, but the population should be able to experience improved well-being and social conditions.
Pointedly, Malta, another small EU comparable country, has used its financial resources more fully than Cyprus by running government deficits averaging 3.5 per cent of GDP over the last three years.
Simultaneously, Malta has achieved real GDP annual growth rates of around 6 per cent, double that of Cyprus, and brought GDP per head to 10 per cent above that of Cyprus. Furthermore, its government debt to GDP ratio has been maintained at around 50 per cent.
