The head of Cyprus’s Fiscal Council warned MPs on Monday that foreign businesses need substantial integration into the local economy or the country risks serious investment outflows.
Michalis Persianis, president of the Cyprus Fiscal Council, told the Parliamentary Finance Committee during discussion of the council’s 2026 budget that such integration is necessary to ensure benefits from foreign direct investment remain in Cyprus rather than being limited to temporary economic activity.
Responding to AKEL MP Andreas Kafkalias, Persianis said growth rates and exports are led mainly by high-tech companies that are “almost exclusively foreign-controlled.”
Persianis noted that based on Gross National Income, the wage share increased by just 1.7% between 2018 and 2023, compared with 3.7% indicated by GDP, describing this as unsatisfactory. The increase is lower than it appears and distributed with greater inequality, he said, because “the higher the average wages in a sector, the faster they increase.”
According to Persianis, this picture connects to the absence of strategic management of foreign direct investment. “The solution is the organic connection of businesses with the Cypriot economy,” he said, citing the Irish model as a successful example.
Ukraine war
The Fiscal Council president spoke of a sharp increase in foreign direct investment with low capital expenditure and high mobility, which he said has not received the necessary management to integrate into the local economy. He stressed that the Ukraine war contributed to the establishment of many such companies in Cyprus, noting it would be a strategic opportunity if they could be persuaded to remain and expand after the war ends.
In that case, he said, direct foreign investment from Cyprus to Ukraine could even emerge, underlining the need for domestic investments abroad without abandoning Cyprus as headquarters.
Social insurance
On questions about rising state debt to the Social Insurance Fund, Persianis said this practice has existed since the Fund’s establishment, with an increase rate of approximately €1 billion annually. He said no rule is violated, but it creates a huge asset in the Fund and corresponding liability in Central Government, describing the issue as a fiscal problem.
He stressed that government financing from the Fund’s surpluses conceals the fact that Central Government remains in deficit for 2026-2028, noting these funds are not directed to productive investments, depriving society of creative benefit.
The Fiscal Council’s 2026 budget stands at €944,263. This includes non-recurring expenses for retroactive salary returns of a seconded official, expenses related to organising a thematic conference during the Presidency, and the gratuity of the President whose term ends within the year.
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