Public payroll in Cyprus rose 37 per cent from 2019 to 2024, in an upward trend, despite supposed freeze

The ongoing discussion on the unfreezing of first-time appointments in the public sector, including local authorities, is crucial, taking into account the size of the public payroll and its broader impacts on productivity.

In 2024, the public payroll amounted to €3.7 billion compared to €2.7 billion in 2019, recording a sharp increase of 37 per cent. Even more disturbingly, an upward trend has been noted, with the annual rate of increase expanding over the last three years, despite the existence of the ‘‘bailout-induced’’ legislation for a freeze on positions.

The key driver has been increased recruitment, indicating that the freeze was, in practical terms, inactive. As set out below, the challenges of increased state payroll, from a long-term perspective, are particularly serious.

Firstly, it affects the long-term sustainability of public finances and limits the ability to finance productive and social spending, for the benefit of the vulnerable groups of the society.

It impacts the efficient functioning of the state, due to the absence of prioritisation of the recruitment framework based on strategic priorities.

It also limits the possibility of stimulating economic activity in periods of sluggish growth. Today, the Cyprus economy is prospering, allowing costs to be covered and inefficiencies to be hidden.

However, when the economic cycle turns (possibly due to exogenous factors or crises e.g. pandemics, wars), the underlying realities and vulnerabilities will rise to the surface.

Furthermore, the shortage of qualified personnel in specific areas of the private sector is exacerbated. While the economy currently enjoys full employment conditions, certain sectors suffer from shortages of qualified personnel. Hiring more civil servants limits the pool of available personnel, further aggravating the problem.

Measures

Based on the above, it is imperative that personnel recruitment and the development of the public payroll be comprehensively reformed, aimed at improving the productivity of the public sector.

A strategic plan should be made, involving an assessment of actual requirements and the setting of priorities for the benefit of sectors that make a positive long-term contribution to modern societies, including the energy and technology transitions.

Staff mobility should be encouraged, taking into account the established priorities.

Performance and productivity indicators should be developed which, to the extent possible, should be based on objective and measurable criteria, with the aim of rewarding productive civil servants.

Such indicators could also be used to ensure that existing staff are efficient before new hires are added, and new staff will contribute effectively towards the improvement of productivity.

There needs to be investment in automation-simplification technologies and process optimisation, aiming at the reduction of the need for new hires, while limiting bureaucracy.

A phased recruitment process should be implemented, with the aim of facilitating the smooth integration of new staff, while distributing the impact of the relevant cost on the state budget over several years.

Flexible employment contracts could be introduced to meet the specific needs of the public service with safeguards to avoid permanent recruitment. The introduction of flexible contracts would allow adjustments to working hours, responsibilities and duration, based on changing economic conditions and the priorities of organisations, enabling short-term staff shortages to be covered while avoiding long-term financial commitments.

Public and private sector cooperation should be encouraged within a modern framework, which aims to safeguard the interests of the public and avoid abuses, especially in the case of large projects.

Simplification and flexibility in the state budget is needed, with the aim of strengthening the responsibilities of line ministries, including transferring funds in order to benefit priority sectors while, at the same time, increasing control and accountability mechanisms.

Interested parties, such as trade unions and industrialists’ federations should be consulted with, and the mechanisms for informing citizens, aiming at transparency and creation of the necessary consensus strengthened.

In conclusion, the public sector’s employment policy and the formation of the public payroll must be radically reformed, with the aim of increasing public productivity and, by extension, the competitiveness of our country.

For this purpose, the relevant but unutilised studies carried out in the past by external and domestic organisations ought to be taken into account. The current process of unfreezing positions must be linked to such a comprehensive reform.