Risks looming for the economy – Fiscal Council

The short-term outlook for the economy is a positive one, but risks could loom in the longer term, the Fiscal Council said on Monday.

Michalis Persianis, chair of the Fiscal Council, was speaking in parliament during a discussion of the entity’s budget for 2024.

He highlighted four main concerns. First, the level of inelastic expenditures – essentially the public sector payroll. Secondly, due to the economic uncertainty caused by geopolitical factors, the council anticipates an increase in social inequality which will likely force the state to raise welfare spending.

Thirdly, the council does not believe state revenues will increase by 6.5 per cent this year, as forecast by the finance ministry.

Lastly, the state’s debt to the Social Insurance Fund has surpassed the €10 billion mark. Decisions need to be made quickly concerning this situation, said Persianis, so as to avoid “pain” in the future.

Because of this state of affairs, the Social Insurance Fund cannot be tapped for other investments. Persianis suggested that, had matters been handled differently, the fund might have been the largest investor in renewables.

The Fiscal Council also flagged the growing practice of the public sector farming out services to the private sector. Persianis warned that this should not become the norm, because it serves as an “alibi” for not fixing what is wrong in the public sector.

In other remarks, Persianis said that whereas their cooperation with the finance ministry is satisfactory, it could be a lot better. He spoke of a lack of “institutional cooperation” with the ministry. It is only because of the positive attitude of certain individuals within the ministry that the cooperation is deemed borderline satisfactory, he noted.

The head of the Fiscal Council also complained that often their observations are given a political spin by government officials. Persianis stressed the council’s goal is to remain politically neutral.

“And we will not be silent in pointing out risks as we see them,” he added.

The Fiscal Council’s own balance sheet for 2024 provides for €508,000 in expenditures. All of the entity’s revenues come from an annual state grant.

As described on its website, the Fiscal Council’s mission statement is “the timely and effective public intervention aimed at the avoidance of a fiscal derailment that will entail the adoption of socially painful measures, and that could be avoided by effective fiscal management that includes counter-cyclical and macro-prudential policies”.

The council consists of three members appointed by the cabinet after consultation with parliament.