31.06.2022
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 warns that if programs are delayed, there will be repercussions for the economy, leading to job losses.
Although its estimates and forecasts are slightly worse than those of the Treasury, there is no significant difference in the macroeconomic and fiscal picture of the two institutions, according to a statement released by the Fiscal Council on Monday. As noted, 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 development 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 surplus financial fundamentals, including the planned reduction in public debt, as well as the projected primary surplus, which should be protected, it says.
This year’s data, and in particular the spike in inflation, 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 Republic can control the style and size of the Fiscal Expansion Policy, 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 objectives of the Recovery and Sustainability Plan.
“Therefore, we note with concern the delay in the submission of the first funding package under the RRP, as well as the delay in the full implementation of the programs included in it. The failure to find agreement in Parliament regarding the 14th point of the first package casts doubt on the achievement of the goals of the RRP, as well as the activation of the relevant multipliers in employment,” emphasizes the Council.
Possible continued delays in RRP implementation will result in the Budget Council revising real growth forecasts to levels below 2% and unemployment levels above 7.8%, with a slight deterioration in public finances.
In addition, the Council reiterates that it considers social spending to be mandatory provided that it is not indistinguishable (horizontal) but targeted and that this does not affect the goals of the green and digital transition.
However, he calls on the Ministry of Finance and Parliament to consider the 14th point of the first financing package as urgent.
“In any case, the implementation of the Program is an extremely important factor in checking the macroeconomic picture recorded in the Sustainability Program. Continued program delays will have a much wider impact than the €85 million first package, resulting in job losses amid already high pressures, especially from escalating inflation, in households and businesses,” concludes the Tax advice.
