Ministry of finance calls on local authorities to be prudent with budgets

The finance ministry on Tuesday reminded municipalities and sewerage boards to prepare their budgets for the first half of 2024 “with prudence and rationality” given the coming transition to the new system of local government kicking in during the second half of next year.

A letter sent to the interior ministry – responsible for municipalities and sewerage boards – advises that the budgets for the first half of 2024 must be balanced and must factor in the government’s own fiscal margins.

The municipalities and sewerage boards must prepare budgets for the first six months of 2024 separately, because on July 1 of that year the new form of local government will come into place with the district-level clusters.

“Given the major uncertainty prevailing due to the ongoing war in Ukraine, which by extension adversely affects the finances of municipalities, the preparation of the budgets should take into consideration both the cash on hand and the ability to collect revenue,” the finance ministry advised.

In the short term, the ministry forecasts a slight slowdown in economic activity. In 2023 GDP is expected to grow by 2.8 per cent, improving somewhat to 3.0 per cent in 2024. For this year, the harmonised inflation rate will be 3.2 per cent, dropping to 2.5 per cent in 2024. Unemployment this year will come to 6.5 per cent, falling to 5.8 per cent in 2024.

The influx of foreign companies registering in Cyprus, mainly engaging in exports in Information and Communication Technologies, as well as growth in tourism to pre-pandemic levels, will help in improving exports.

The total grant to municipalities for the first half of 2024 comes to €26.7 million.

Because the fees and taxes imposed by municipalities during the first half of 2024 will be collected during the second half of the year, the budgets will likely be in the red.

The same advice is given to the various sewerage boards.