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Government Fiscal Performance Q3 2025: Surplus Decline Amid Revenue Gains and Elevated Spending

by THEFUTURE.TEAM

Fiscal Surplus Contraction in Q3 2025

Preliminary fiscal data for the period July–September 2025 indicate that the general government recorded a surplus of €653.6 million, a decline from the €871.0 million surplus achieved in the corresponding quarter of 2024. Detailed analysis from the Pleonasma series and related commentary on fiscal outcomes underscores the evolving economic landscape.

Revenue Enhancements

Total revenues for Q3 2025 increased by €104.2 million (+2.6%), reaching €4,099.0 million from €3,994.8 million in Q3 2024. Social contributions demonstrated robust growth, rising by €62.5 million (+5.7%) to €1,151.2 million from €1,088.7 million during the same period last year.

Revenue gains were also observed in personal income and wealth taxation, which grew by €10.9 million (+0.8%) to €1,299.3 million compared to €1,288.4 million. Taxes on production and imports increased by €7.1 million (+0.6%), totaling €1,264.3 million; notably, net VAT revenue (after reimbursements) saw an encouraging rise of €40.2 million (+4.8%) to €886.4 million.

Other revenue segments, including receivables from property income, capital transfers, and goods and services provided, also registered modest improvements. Property income receivables climbed by €3.0 million (+13.5%), while capital transfers surged by €6.0 million to €10.8 million. Revenues from goods and services increased by €15.1 million (+6.1%) to €260.9 million. Conversely, current transfers experienced a slight contraction, decreasing by €0.4 million (-0.5%) to €87.2 million.

Escalating Expenditures

Total expenditures during the period advanced by €321.5 million (+10.3%), reaching €3,445.3 million versus €3,123.8 million in Q3 2024. Social benefits were the primary driver, with an increase of €97.8 million (+7.9%) to €1,334.6 million compared to €1,236.8 million previously.

Employee compensation—which encompasses statutory social contributions and public employee pensions—rose by €50.5 million (+5.6%), culminating at €955.6 million, up from €905.1 million. Intermediate consumption saw a moderate uptick of €4.5 million (+1.2%) to €382.0 million.

Notably, the capital account expenditures surged by €223.7 million (+84.2%) to €489.3 million, which includes €321.0 million in capital investments and €168.3 million in capital transfers, compared with €265.6 million the previous year. In contrast, payable property income contracted by €26.1 million (-25.7%) to €75.3 million, and other current expenditures fell by €16.1 million (-8.6%) to €171.2 million. Furthermore, subsidies experienced a marked reduction, dropping by €12.6 million (-25.3%) to €37.3 million from €49.9 million.

Implications for Policy and Economic Stability

The evolving fiscal indicators highlight the complex balance between revenue enhancements and growing expenditures amid changing economic conditions. The data, meticulously compiled and reported by the national statistical authority, point to significant challenges and opportunities for policymakers tasked with sustaining long-term fiscal stability.

Outlook

The detailed disaggregation of revenue and expenditure items is critical for informed decision-making in the public sector. As governments navigate the interplay of rising social contributions, evolving tax bases, and shifting capital investments, the Q3 2025 fiscal performance offers pivotal insights into the broader economic trajectory and the future direction of public finance management.

ECB Raises Deposit Facility Rate For First Time In Nearly Two Years

by THEFUTURE.TEAM

Economic Shift: ECB Reverses Years Of Declining Rates

The European Central Bank (ECB) confirmed its first interest rate increase in nearly two years, raising the deposit facility rate in response to inflationary pressures and geopolitical uncertainty. Marking a shift in monetary policy, the move follows a period of rate cuts aimed at supporting economic activity and easing financing conditions.

Reevaluation Of Bank Liquidity Strategies

Although the immediate impact will be felt by only part of the borrowing market, the decision carries broader implications for banks. During the period of lower rates, banks maintained significant amounts of excess liquidity with the ECB as returns on these funds declined alongside deposit rates. With the deposit facility rate increasing by 0.25 percentage points to 2.25% from 2.00%, returns on surplus liquidity are expected to improve.

Higher interest rates, however, could also increase borrowing costs and influence lending conditions across the banking sector.

Transitioning Investment Approaches And Market Dynamics

Banks had already begun diversifying the use of excess liquidity through investments in bonds and by expanding lending activities.

Successive reductions in the deposit facility rate from 3.00% at the end of 2024 through four consecutive cuts in early 2025 reflected a more accommodative policy stance as inflation pressures moderated.

Sectoral Impact And Future Outlook

Data from the ECB’s 2025 monetary policy report show that liquidity in the Cypriot banking system declined from €19.2 billion at the end of 2024 to €18.6 billion by the close of 2025. Despite the reduction, liquidity levels remained elevated. Outstanding loans increased from €27.6 billion to €31.7 billion, while deposits recorded a slight decline. Customer deposits continued to account for the vast majority of funding. By the fourth quarter of 2025, they represented 95% of total liabilities, highlighting their importance as the banking sector’s primary source of financing.

Changes in ECB rates are expected to influence how banks manage liquidity and allocate capital as monetary conditions evolve.

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