Fiscal Council: ‘next state budget should focus on building resilience’

The Cyprus Fiscal Council on Wednesday said the 2023 state budget should be designed in such a way that it bolsters the Cypriot economy’s presently-satisfactory resilience, primarily to the worrying developments on an international level.

At the same time, the council also issued a warning that the current state of the Cypriot economy “should be treated as temporary, as the international economy has delivered serious warnings that the coming years will bring greater and wide-ranging challenges”.

The council added that despite the fact that there is a surplus in public finances, “given the clouds on the horizon of the global economy, there is no real buffer in the finances”.

Furthermore, the council stressed that “the Republic of Cyprus has enjoyed increased revenues this year, but it will need them, and this can be said with certainty, during the next 24 months”.

It also stated that based on the available data available, it should be clear that the approach to the state budget must be governed by caution and prudence, and that it would be wiser to avoid over-optimistic estimates, including theoretical increases in government revenues.

“On the contrary, fiscal policy should focus on growth, targeted protection and employment, with primary surpluses supported by investments in the real economy,” the council stated, before adding that a conservative fiscal policy would also be consistent with the recommendations of the European Fiscal Board (EFB).

The fact, the council said, that the rating agencies have started to include these risks in the evaluations of the Cypriot economy, is a natural consequence of external pressures.

What is more, the council stated that “horizontal measures are socially unfair, go against the objectives of the Green Transition, are ineffective in terms of their stated objective, as well as being wasteful”.

“The taxpayer would pay to serve a socially and environmentally unfair policy, while also putting the economic stability of the country at risk over the coming years,” it added.

The council also stated that the policy of supporting households in lower economic brackets, as well as small and medium-sized enterprises, would be economically wiser and socially and morally fairer, and should be the preferred path going forward.

Referring to the current state of the Cypriot economy, the Fiscal Council stated that it “continues to show endurance and resilience in the face of the ongoing difficulties recorded in 2022, even though these followed two already difficult years of reduced growth”.

“Both the real rate of growth and employment continue to move at satisfactory levels, with the Cypriot economy continuing to perform very well compared to our other partners in Europe and the Eurozone, despite the ongoing difficulties due to inflationary trends and supply chain disruption,” it added.

In addition, the council stated that public finances continue to inspire credibility and stability, with no serious fiscal developments, despite the challenging conditions of the last 36 months and the resulting increase in spending required to deal with both the Covid-19 pandemic, as well as the subsequent inflationary crisis.