31.03.2022
The Financial Council of Cyprus has announced that it has unanimously approved the Stability Program estimates and projections, which will shortly be submitted to the Commission. However, he warned that if the programs were delayed, there would be repercussions for the economy, leading to job losses.
According to the statement from the Financial Council, although its estimates and forecasts are slightly worse than those of the Ministry of Finance, there is no significant difference in the macroeconomic and budgetary picture of the two institutions. As he notes, the difference in estimates is due to the assumptions on which the estimates are based and the increased uncertainty that prevails due to ongoing external shocks, the duration and evolution of which remain unpredictable throughout the year.
The Tax Council notes that the planning of the Ministry of Finance is conservative and does not provide for negative changes in the budgetary sphere. In addition, he considers it particularly important that Cyprus return to fundamental budget surpluses, including the cancellation of public debt, as well as the projected primary surplus, which must be maintained.
This year’s data, and in particular inflation escalation, is driven by external events, the Council said, “including the war in Ukraine and monetary policy decisions, over which the republic has little to no influence.”
However, the variable in which the Republic retains control is the style and size of fiscal expansion policies, on which the provisions of the Stability Program are largely based.The fiscal expansion policy concerns, on the one hand, the National Reform Program that will be presented to the Council of Ministers this week, and, on the other hand, the implementation of the goals of the Sustainable Development and Development Plan (SAP).
“Therefore, we note with concern the delay in the presentation of the first funding package under the SAA, as well as the full implementation of the programs included in it. The failure to find agreement in Parliament on the 14th Paragraph One “casts doubt on the implementation of the objectives of the SAA, as well as the activation of the corresponding multipliers in the field of employment,” the Council emphasizes.
Possible continued delays in the implementation of the SAA will force the Budget Council to revise its forecasts for real growth to levels below 2% and unemployment to levels above 7.8%, with a slight deterioration in public finances.
In addition, the Council reiterates that it considers social spending mandatory, meaning that it will not be indistinguishable (horizontal) but will be targeted and that the objectives of the green and digital transition will not be affected.
However, he calls on the Ministry of Finance and Parliament to consider the 14th and final item of the first funding package as urgent.
“In any case, the implementation of the Program is an extremely important factor in checking the macroeconomic picture recorded in the Stability Program. “As a result of job losses amid already high pressures, especially from escalating inflation, in households and businesses.”
