Municipalities told to keep 2026 budgets balanced and within means

Twenty municipalities across Cyprus will follow the precedent set in 2025 for their 2026 budgets, sharing a state grant totalling €117 million.

According to a report by Philenews, this grant represents a significant increase of €45 million compared to the funding they received prior to the implementation of the Local Government Reform, which took effect on July 1, 2024.

The amount of the state grant allocated to each municipality is determined based on criteria including population, area, and residential density.

The €117 million is set to be distributed among the municipalities, with Nicosia receiving the largest share at €22.55 million, followed by Limassol at €17.03 million.

Larnaca is allocated €10.09 million, and Strovolos will receive €9.28 million. Paphos is set to receive €6.65 million, while Lakatamia will get €6.35 million.

Other notable allocations include €5.21 million for Amathounta, €4.94 million for Paralimni-Deryneia, €4.36 million for Latsia – Geri, and €4.33 million for the Kourio Municipality.

The municipality of Aradippou will receive €3.85 million, Ayia Napa €3.74 million, South Nicosia-Idalion €3.63 million, and Polemidia €3.44 million.

Smaller amounts are allocated to Yeroskipou (€2.33 million), Akamas (€2.21 million), Dromoloxia-Meneou (€2.21 million), Polis Chrysochous (€1.97 million), and Lefkara and Athienou, both receiving €1.36 million.

Based on a circular issued by the Finance Ministry, municipalities are required to submit their 2026 budgets by the end of the month.

They are urged to prepare their budgets with “prudence and rationality” while at the same time prioritising their needs.

The ministry also stressed that expenditures should “remain within their financial capabilities“, reflecting the strategic directions of the government and ensuring that measures and actions “offer the greatest possible added value” and align with the government’s strategic goals.

The Finance Ministry further instructed that municipalities must prepare their budgets on a unified basis and with a three-year horizon, factoring in the distribution of the €117 million state grant.

It added that “the current geopolitical situation has greatly increased financial uncertainty internationally and the outcome of these developments is an important parameter for economic developments in the coming years”.

“In view of the great uncertainty prevailing”, the ministry continued, “for the preparation of the municipal budget, both cash available and the ability to collect revenues should be taken into account.”

In addition, municipalities are called upon to ensure their budgets “are governed by the principle of a balanced budget“.

“This means that projected revenues from the municipality’s operation, including the state grant and other grants, must cover the total projected operating expenses,” the ministry explained.

Moreover, it highlighted that the cash flow must show a positive or zero balance to ensure short-term liquidity, meaning the municipality can meet its obligations immediately, including loan repayments.

Regarding revenues, the circular states that “estimates must be realistic” and take into account the current economic situation, forecasts for the economy’s course, and the collection capacity of each municipality.

“Expenditures must be calculated with rationality, accuracy, and consistency, within the financial means of each municipality,” the circular stressed.

For development projects, municipalities are urged to include only those that are deemed necessary and mature, prioritising those that are funded by European funds and only if liquid funds are available for their implementation.

The budgets must also record all commitments and obligations undertaken, such as payments.

Concerning personnel matters, the budgets should state the level of wage expenditure as a per cent of the municipality’s total expenditure.

The circular further stated that the employment policy aims to ensure the sustainability of public finances and achieve an efficient and effective wider public sector through the further development of human resources.

What is more, the ministry said that it “strictly prohibits the employment of pensioners by municipalities, with the exception of those holding state office and those under service contracts based on public procurement”.

“Municipalities are urged to strictly adhere to deadlines and submit their budgets promptly to the finance and interior ministries, ensuring they have time to review them before the end of the year and thus avoid the use of twelfths,” the circular concluded.