Cyprus is witnessing robust economic growth; however, the Troika of international lenders has pinpointed several critical areas during their 18th post-memorandum review. Key concerns center around governmental expenses, energy costs, judicial reform, and pending public infrastructure projects. Although the economy and banking sector appear stable, these issues could undermine long-term financial sustainability.

A significant concern is the increasing state payroll. Recent hikes in wages and improved public sector benefits, such as the Automatic Cost of Living Adjustment (COLA), have considerably raised personnel costs. The Fiscal Council warns that fixed expenses, representing 60% of the budget, might escalate to 70% by 2027, with public sector salaries alone accounting for 31.7% of total government expenditures, limiting the government’s budgetary flexibility. While Cyprus’ public debt remains manageable, unchecked payroll expenses could pose a challenge to the nation’s financial stability.

In terms of energy, the Troika has closely examined the Cyprus Electricity Authority (EAC) and the broader energy sector. High electricity costs continue to be a concern, impacting Cyprus’ shift towards sustainable energy solutions. EAC has faced criticism for inefficiencies, and its involvement in Cyprus’ renewable energy plans is under evaluation. Incomplete projects, such as the Vasilikos power station, have further stalled advancements in energy sector reform.

The slow pace of judicial reform remains a significant issue. For some time, the Troika has advocated for an overhaul of Cyprus’ court system, but meaningful progress has yet to materialize. Modernizing the judiciary is crucial for gaining access to EU Recovery and Resilience Fund (RRF) support, making it a top priority. Failing to update the legal system affects efficiency and economic confidence.

The Troika has expressed concern about incomplete public infrastructure projects, particularly in the energy sector. Delays in such projects act as impediments to economic growth, with the unfinished Vasilikos power station being a notable concern, as infrastructure delays stunt overall development.

On a more positive note, Cyprus’ banking sector is stable, with the review highlighting no major issues. Additionally, the General Health System (GHS) is no longer a topic of concern for the Troika, as its costs remain in check.

Going forward, until Cyprus repays 75% of its European Investment Bank loan, the Troika’s review process will continue. Addressing issues related to government spending, energy, judicial, and infrastructure domains is vital for ensuring lasting economic stability.