The government has decided to use around €185m of taxpayer money to bail out indebted local authorities, it emerged on Friday.
The decision was made by the cabinet on Wednesday, President Nicos Anastasiades tweeted.
“Municipalities and communities are freed from the burden of debt instalments,” he said.
The money spent on debt servicing each year would now be diverted to projects, Anastasides added.
The move has raised eyebrows as local authorities are viewed as a bottomless pit, used by political parties throughout the years as vehicles for featherbedding.
Interior Minister Constantinos Petrides said funding to local authorities has been cut by 40 per cent; vital reform however, is being delayed by parties.
The bills to reform the sector, including cutting the number of local authorities to more sustainable levels, have been languishing in parliament since July 2015 and were not expected to be approved as parties closed ranks ahead of the presidential elections next February.
In April, the chairman of the union of municipalities appealed to the government to reinstate the full sum of state funding, saying some authorities were on the verge of default.
Former interior minister Socratis Hasikos had said repeatedly that he local authority model implemented in Cyprus was dated and there was an excessively large number of municipalities – 39 including nine so-called refugee municipalities — with costly departments.
Local authorities are plagued by several problems, as highlighted in successive reports by the auditor-general.
They include cash-flow problems, big delays in debt collections, loans in excess of €300m for some, failure to submit accounts within the period specified by law, non-existent audit procedures and debts to pension funds in excess of €150m.