Finance Minister Constantinos Petrides appealed to legislators on Monday to pass the state’s balance sheet for 2021, calling it an “emergency budget” designed to ride out the coronavirus situation and lay the groundwork for economic recovery.
“What I want to emphasise again is the criticality of the moments concerning the financial management of the pandemic,” he said.
He was presenting the 2021 state budget to the House finance committee. Next year’s balance sheet comes to €609 million – 8.7 per cent larger than last year – as the government seeks to boost the budget’s social welfare dimension, including emergency measures to support vulnerable groups, employees and companies.
Taking flak from opposition parties asserting the built-in contingencies did not cover a possible prolongation of the epidemic in Cyprus, Petrides said the budget is based on the underlying assumption of no need for a second nationwide lockdown.
“We don’t intend to go to a total lockdown as we did in March and April…that would spell economic disaster,” he stated, adding however that precautionary measures would be adapted to the situation as it unfolds.
“I’ve described it as an emergency budget. It was drafted with the philosophy of a substantive and targeted expansionary policy that will not lead to fiscal derailment that might land the country in hot water.”
According to the minister, the budget’s top objective is dealing with “the fallout from the crisis in the best possible way, but also to lay the foundations for generating primary surpluses.”
Asked if the administration has a Plan B in the event the coronavirus situation drags on – necessitating further relief spending – Petrides said they’ve worked out various scenarios.
It could mean cutbacks to other sectors, adversely impacting the purchasing power of segments of the population, as resources are diverted to financially vulnerable groups.
One such scenario – for which the government has crunched the numbers – would see a freeze in pay rises in the public sector.
More broadly, the minister noted that Cyprus stands to tap potentially up to €2.6 billion in EU funds over the coming years – provided however that uptake is maintained at a high level.
These are broken down as follows: €1.4 billion from the EU’s 2021-2027 Multiannual Financial Framework, €1.09 billion in subsidies from the Recovery and Resilience Facility, and €148 million from React EU – a European Commission programme addressing the economic fallout of the Covid-19 pandemic.
Inevitably the discussion turned to the recent explosive reveals over the citizenship-by-investment (CBI) scheme – which led the government to scrap the programme.
Junior opposition party Diko threatened flat-out to vote against the budget bill unless the government in the meantime grants the auditor-general access to information regarding passports issued under the CBI.
Christiana Erotokritou, chair of the House finance committee and Diko MP, called this “a responsible political stance toward the country and our people, who have often in the past paid the price through no fault of their own.”
Hitting back, the finance minister dubbed this “political blackmail,” urging the parties to decouple the citizenship issue from the budget debate.
He also gave assurances that any new programme to attract foreign investment would “definitely not” be modeled on the CBI.
By the government’s calculations, the blow to GDP as a result of the termination of the CBI could be mitigated by domestic demand, which got a boost from a scheme subsidising the interest rates for home and business loans.
“There is interest in this, and so we’re having thoughts about extending it [the interest rate subsidy scheme] by six more months,” Petrides said.
The finance ministry forecasts a budget deficit for the period 2020-23 and an increase in public debt as a percentage of GDP in 2020, due to the new economic conditions.
The 2021 budget forecasts revenues of €8,861,318,757 and primary expenditures (excluding loan repayments and interest expenses) of €7,609,847,339, with the primary balance amounting to €1,251,471,418.