Panayiotis Rougalas
The Cyprus government is set to fully lift the ban on hiring permanent public sector employees, marking a significant shift from austerity measures imposed over a decade ago. A bill submitted to Parliament last Thursday by the Ministry of Finance effectively reopens the door to full tenure in the public sector, with no structural reforms such as performance evaluations or other accountability measures.
The decision follows a series of recent pro-public sector policies, including wage hikes and increases in the Automatic Price Adjustment (ATA). While these moves benefit thousands of government workers, they also spark concerns over long-term financial sustainability and widening disparities between public and private sector employment.
A Reversal of Austerity Measures
The hiring freeze was first implemented in 2011 as a cost-cutting measure and solidified in 2013 as part of Cyprus' financial bailout agreement with the Troika. Alongside it came wage freezes and the suspension of ATA payments. However, in the past year, the government has systematically reversed these policies:
- July 2024: A 1.5% general salary increase for all government employees was introduced.
- ATA (cost of living allowance) Increase: The allowance, which adjusts wages based on inflation, was raised from 50% to 66.7%, benefiting approximately 180,000 workers in both the public and private sectors.
- Now: The lifting of the hiring ban paves the way for expanding the public workforce, granting permanent tenure once again.
These measures have reignited concerns about Cyprus’ fiscal stability, with critics warning of a return to pre-2013 spending habits.
Expanding the Public Workforce
Government employment has steadily increased since the country exited its bailout program in 2016. Initially, this was achieved through temporary hires, which allowed flexibility in managing costs. However, with tenure reinstated, the ability to adjust workforce size in response to economic conditions may be significantly reduced.
Figures from the Cyprus Statistical Service show a clear upward trend:
- In 2010, there were 42,226 permanent and 10,378 temporary employees.
- By 2024, the total government workforce had risen to 55,248, with 32,806 permanent staff—the highest level in years.
- In January 2025, public sector employment stood at 55,107, with 32,732 permanent employees and 12,849 temporary employees.
While temporary staffing had been the primary driver of workforce expansion, the new policy will likely shift that balance toward permanent hires.
Rising Fiscal Pressures
Cyprus' fiscal watchdogs have repeatedly warned about the risks of unchecked spending growth. The Fiscal Council’s 2024 report highlighted that "rigid" government expenses—such as payroll and benefits—are on an upward trajectory, making them difficult to reverse. Currently, these costs account for 60% of total government spending, with projections showing a rise to 70% by 2027.
Personnel costs alone are expected to reach 31.7% of total government expenditure within three years, limiting the state’s ability to invest in other areas.
A Growing Divide Between Public and Private Sectors
The lifting of the hiring ban further highlights disparities between the public and private sectors. While government employees now enjoy tenure, guaranteed salary increases, and ATA-linked wage adjustments, private sector workers remain largely excluded from such benefits. Most private employers do not offer ATA, and salary hikes are not institutionalized.
This growing divide raises concerns about economic competitiveness and fairness. The International Monetary Fund (IMF) has already issued early warnings about the need to curb government payroll expansion. Meanwhile, Cyprus awaits a European Commission report assessing the sustainability of public sector wages.
Government Commitments and Union Agreements
The Ministry of Finance has justified the move by citing commitments made to labor unions, particularly under agreements with PASYEY, OHO-SEK, and SIDHEKEK-EO. The government had pledged to lift the hiring ban as part of broader negotiations on employment conditions.
While public sector unions welcome the change, economic analysts caution that Cyprus must balance labor rights with financial prudence to avoid repeating past mistakes.
As Parliament prepares to debate the bill, the country faces a critical decision: prioritizing job security and wage growth for public employees or ensuring long-term fiscal sustainability.
*This artice was translated from its Greek original and summarized
