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Government spending set to push public debt to record highs 

The ministry of labour

The current uptick in economic activity, following the doldrums of 2020 due to coronavirus-related closures, appears largely driven by high government spending that is projected to push public debt to record highs.

Data released by the Statistical Service on Tuesday for the first semester of 2021 show a 4.8 GDP increase, one of the highest in recent years – although the rebound is in relation to the major slump registered the previous year.

In 2020 as a whole the economy contracted by 5.1 per cent.

And despite the current economic growth, the public deficit for January to July came to €648.9 million (or 3.1 per cent of GDP), compared to €686.5 million (3.3 per cent of GDP) for the same period of 2020 – very little change.

Meantime public debt at the end of the first quarter was at 125.7 per cent of GDP – at levels surpassing the post-bailout years.

The Debt-to-GDP ratio before the pandemic (2019) stood at 94 per cent. In 2020 it climbed to 118.20 per cent.

Normally economic growth goes hand in hand with declining deficits, since state revenues increase, the University of Cyprus Centre for Economic Research’s Giorgos Syrihas told the Stockwatch news outlet.

But at this juncture, he added, the state is still spending a great deal to prop up the economy.

Meantime the labour ministry continues to support employees and businesses impacted by coronavirus-related policies.

Based on the finance ministry’s macroeconomic scenario, the economy is forecast to grow this year by 3.6 per cent; later revised to 5.5 per cent.

But at the same time, estimates place the public deficit for 2021 at €1.041 billion, or 4.7 per cent of GDP; compared to a deficit of 5.8 per cent last year.

In related news, by month’s end the government is expected to table a bill to parliament ending the freeze on full-time hires in the public sector.

The freeze came into effect back in 2013 in a bid to shore up the government payroll as part of consolidation measures.

Head of the civil servants union Pasydy Stratis Mattheou said the bill does not refer to new hires in the central government and broader public sector, but rather to entry-level positions or promotions of existing staff to positions vacated due to retirement.

During the freeze, the Public Administration and Personnel Department would come to parliament every time and ask MP to green-light the filling of vacated entry-level positions. 

Now, under the bill, the Public Service Commission alone will decide on this hiring.

Despite the nominal freeze on hires, the number of persons employed in the broader public sector in the first quarter of 2021 went up by 556 compared to the same period of 2020.

A total of 69,819 persons were employed in the public sector at the end of the first quarter this year.

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