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Our View: Government, opposition ignore Fiscal Council at their peril

Fiscal Council chief Demetris Georgiades

One independent official that is largely ignored by the politicians and especially the government is the President of Fiscal Council, Demetris Georgiades, because he rarely says anything that boosts confidence about the economy or that is in line with the government’s ‘success story’ narrative. On the contrary, Georgiades usually punctures the economic optimism promoted by the government by highlighting the weaknesses that are not addressed and issuing warnings about failure to act.

Politicians cover their ears and pay no attention to anything said about the need to reduce public spending or manage state funds prudently. Even the opposition parties that could score points against the government by citing the observations of the Fiscal Council’s report avoid doing so because their main criticism of the government has always been that it does not spend enough on development, supporting vulnerable groups, improving infrastructure etc. High state spending is considered good by the parties even when there are no funds available.

Nobody will pick up the points made in the Fiscal Council’s summer report, which, as always, warns about the growing public payroll, points out the market distortions created by the Cyprus investment programme, such as high rents unaffordable by many Cypriots and the need for social housing and the vulnerability to foreign currency fluctuations that directly influence the economy. All these factors have a direct impact on the fiscal situation of the country.

For example, a fall in the value of the Russian ruble or pound sterling, combined with the cheap Turkish lira would lead to lower tourist arrivals, a fall in consumption and lower tax revenue. The public payroll, meanwhile, is on an upward path that cannot be stopped when tax revenue falls as a result of exogenous factors. The state cannot base its spending on the bumper tourist arrivals of the last couple of years because these can easily fall. Presenting his report, Georgiades mentioned that Cyprus has the biggest number of policemen as a proportion of population in the EU and still more were being recruited. What party will oppose the hiring of more policemen?

Georgiades said there were a dozen dangers that could derail the economy from the positive path it was on and the only way to safeguard against this was reform. Reform usually takes many years to be implemented which is why in the meantime caution and restraint should influence all state spending decisions. We ignore the warnings of the Fiscal Council at our own peril.


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