Cyprus Mail

Government plans return to less spending and revenue over the medium-term

The government is planning to gradually reduce the levels of government spending and revenue as a percentage of gross domestic product over the next three-year period to levels last seen before the adoption of the euro from around 40 per cent of the economy last year.

According to the data of the government’s fiscal policy strategic framework 2017-2019, the government is planning to gradually reduce overall spending and revenue levels to 37.4 per cent of economic output and 37.8 per cent respectively by 2019 from 40.1 per cent and 39 per cent last year.

The shift towards less spending and fiscal consolidation is in complete contrast to the situation in 2009-2013, in which bloated government spending combined with a slowdown in economic growth lead to spending levels of 42.1 per cent on average, a slump in revenue which led to fiscal gaps of 5.3 per cent of gross domestic product, and a gradual increase of public debt to over 100 per cent of the economy, an analysis of government data shows.

Over the next three-year period, the government wants to run marginal fiscal deficits, which, assisted by an average annual economic growth of 2.5 per cent, will help reduce public debt to 90.5 per cent of the economy by 2019, the strategic framework says.

The injection of fresh capital into the cooperative banks over the 2014-2015 period, marginally less than one-tenth of GDP, combined with a weakened economy over the past years and negative inflation, allowed public debt to peak at 108.9 per cent last year, more than twice 2008 levels.

In addition to a relatively low government debt as a percentage of gross domestic product in the years preceding EU-accession, Cyprus also maintained low levels of government spending and revenue, even as it did not excel in fiscal discipline. According to data available on the website the statistical service, in 2000-2003, government spending was on average 36.9 per cent of GDP compared with average revenue of 33.3 per cent. Public debt was 58.9 per cent of GDP while the average fiscal gap was 3.6 per cent.

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