Finance ministry: economic growth expected in 2021

As is the case with the global and European economies, the course of the Cypriot economy continues to greatly depend on the pandemic but despite being characterised by uncertainty, the government forecasts of medium-term prospects are positive, MPs heard on Wednesday.

According to the House finance committee 2022 budget report, read before the plenum ahead of the budget discussion, sustainable growth, keeping the public debt viable, achieving a fiscal surplus, and protecting the people’s living standard from inflationary pressures, must be among the government’s policy priorities.

Promoting the green economy, digital transformation, research and innovation, rational and substantive management of non-performing loans, structural reforms, and important development projects would contribute to the recovery of the economy in the medium and long terms.

Based on the finance ministry’s forecast, the economy in 2021 is expected to record growth, despite the contraction caused by the pandemic the previous year.

The public debt will remain high mainly because of state borrowing in 2020 to cover the fallout of the pandemic while inflation is expected to remain stable at 2 per cent throughout 2024.

Unemployment is expected to drop slightly in 2021, to 7.5 per cent, compared with 7.6 per cent in 2020, and continue falling in the next three years.

The budget anticipates a 4 per cent rise in revenues and a 0.8 per cent drop in primary spending – excluding loan repayments.

The public payroll (central government) is also expected to rise by 2.8 per cent to around €3.1 billion in 2022, mainly due to the payment of cost of living allowance, incremental pay rises, and a rise in staff.

Operational expenses will rise by 8.1 per cent mainly because of a rise in defence spending, consulting services, tax returns, personnel training, and publicity.

Social transfers are expected to fall by 2.2 per cent, to €1.6bn in 2022, due to cuts in the assistance granted by the state during the pandemic.

Other social transfers, which concern education, health, social welfare, shelter, and culture, will rise by 5.4 per cent.

Development spending is up 9.9 per cent, at €1.2bn in 2022, mainly because of the launch of large infrastructure projects.

Debt servicing is expected to fall by 13 per cent to €458.2m, due to repayment of old loans with new money borrowed at a lower cost.