Cabinet approves ‘fiscally responsible’ budget (Updated)

The council of ministers on Wednesday approved the first budget of the new government with promises of effective support for the middle class, fiscal responsibility, and achieving EU sponsored goals of green and digital transformation.

The announcement was issued within the context of renewed calls for fuel subsidies, unions calling for greater relief from the cost of living, and concerns over a looming recession in Europe.

President Nikos Christodoulides referred to the finance minister’s estimated growth rate for Cyprus of 2.9 per cent in 2024 – allowing for “the generation of surpluses”.

The president said the fiscal balance for 2024 is estimated to show a surplus reaching 2.2 per cent of GDP, a sum of €659 million.

He added that the medium-term goal is to reduce public debt to 60 per cent by 2026.

The budget also allows for increased development spending 12 per cent higher than last year’s, with social benefits spending also set to rise by 15 per cent – amounting to €2bn.

The government has promoted the budget as being fiscally responsible while also achieving competitive growth which, it says, will enable the government to support crucial sectors.

“[It] is a surplus budget that transforms the core principles of the governance programme into costed and achievable investments and reforms,” Christodoulides said in a written statement after the meeting.

Christodoulides further stated that achieving a sustainable and resilient economy which promotes the green and digital transformation through modern governance can be achieved within the framework of fiscal stability and responsibility.

Notably, and seeking to display fiscal responsibility, the president said the budget has a “significantly reduced increase in permanent public sector positions, with just 52 compared to 485 in the 2023 budget”.

But Finance Minister Makis Keravnos warned that they must navigate the economy through choppy waters.

However, he praised it as being significantly focused on development and growth – pointing to projects and investments supported by the EU’s recovery and resilience plan.

In comments just before the council of ministers meeting, Keravnos said there had been a slight downward revision of Cyprus’ growth projections.

Attributed to the successive ECB rate hikes and the ongoing war in Ukraine, the minister said the projections were adjusted from 2.8 per cent GDP growth down to 2.6 for the current year, while for 2024 it’s projected at 2.9 per cent.

Another feature of the budget, he said, is restraint of the state payroll and public sector employment.

As recently as June, parliament gave the greenlight for unlocking another 1,800 positions in the public sector, as requested by the government, with opposition Disy complaining about the high cost to the taxpayer.

More upbeat, Keravnos said that projections show unemployment decreasing next year to 5.8 per cent from 6.5 per cent.