Republic of Cyprus - Defense Spending

Defense costs were divided into two categories, budgetary spending and off-budget expenditures. The former were believed to include mainly the ongoing personnel and training expenditures of the National Guard, while the latter included capital expenditures, notably arms purchases. Off-budget expenditures were disbursed from a defense fund, the size of which was not disclosed. The defense fund was financed by a special defense levy on interest, dividends, rents, and company profits. This levy was raised from 2 to 3 percent effective July 1990, and was to be extended for three years until mid-1993. In addition, receipts from increased taxes on gasoline and cigarettes were to be deposited in the defense fund. Private companies and the Church of Cyprus, considered to be the wealthiest institution on the island, also contributed directly to the fund.

According to data published by the United States Arms Control and Disarmament Agency (ACDA), which included only regularly budgeted defense items, military spending had gradually tapered off, from US$42 million in 1981 to US$35 million in 1987. With inflation taken into account, the reduction was even more marked, from US$52 million in 1981 to US$35 million in 1987, in constant 1987 dollars. Budgeted defense spending constituted only 0.9 percent of the gross national product (GNP) in 1987 (down from 2.0 percent in 1981) and 2.9 percent of total central government expenditures (down from 7.0 percent in 1981). Budgeted military expenditures amounted to US$51 per capita annually.

Although total defense outlays were considered classified information, Aloneftis said in a 1990 interview that they would total US$325 million in 1990 and that similar amounts would be spent annually for the following three to five years. This was triple 1986 defense spending. According to Aloneftis, the arms buildup was being financed through supplier credits and loans from France, Greece, Italy, Singapore, Yugoslavia, and Switzerland. During the five-year period of 1983-87, total arms imports had been US$320 million, and most of these shipments had occurred in 1987, according to ACDA. France had been the dominant supplier (US$290 million) and most of the rest had come from Brazil.

In 2004 a new Sector began its operation dealing with European Union matters related to the European Defence Agency. Cyprus became a member of the Agency when it was established in July 2004. The Agency's is the support of the European Defence and Policy of Security as well as the support of the efforts of the Council and of the Member States at improving the potential in the field of crisis management. Furthermore it aims at promoting the strengthening of European cooperation in matters of armaments, strengthening the Defensive Industrial and Technological Basis, the creation of a competitive European Market of Defensive Materials and strengthening research and technology. The Armaments Directorate participates with its staff and with National Guard staff, in all organs of decision making of the Agency, as well as in various work groups of specialists on subjects of interest to the Ministry of Defence and the National Guard.

The MOD Directorate of Economic Administration and Budget is responsible for the preparation and follow up of the materialization of the Ordinary Budget of the Ministry and of the Budget of the Defence Fund (DF),comprising the follow up of agreements to secure armaments for the National Guard. It also takes care of provisioning, clothing and foot-wear for the National Guard and the provision of other military materials.