articles | 09 October 2020

Cyprus budget deficit for 2020-2023 forecasted due to coronavirus

The island’s Ministry of Finance forecasts a budget deficit for the period 2020-2023 and an increase in public debt as a percentage of GDP in 2020 due to fresh economic conditions sparked by the coronavirus.

This is based on the state budget for 2021 report which was approved by Cabinet on Wednesday and whch Finance Minister Constantinos Petrides referred to as an “emergency” budget.

The government budget for 2021 predicts revenues of €8,861,318,757 and primary expenditures (excluding loan repayments and interest expenses) of € 7,609,847,339, with the primary balance amounting to € 1,251,471,418.

According to the data of the Ministry of Finance, the budget of 2021 and the Medium – Term Fiscal Framework (MTF) 2021-2023 were prepared in very difficult conditions. The COVID-19 pandemic crisis inevitably affected fiscal data not only in Cyprus but also worldwide, it is noted.

“The current crisis is different from the previous ones – there is uncertainty about the extent and intensity of the crisis, which makes economic planning difficult. The new economic conditions lead, according to the forecasts of the Ministry of Finance, the fiscal balance to a deficit position in 2020-2023 and to an increase in public debt as a percentage of GDP in 2020 “, it is added.

The Ministry points out that due to the fact that public debt as a percentage of GDP, remains high, it becomes absolutely necessary to maintain the ceilings as finally formulated in the 2021 budget bill and the 2021-2023 MTF.

In the three years 2021-2023, an amount of € 3,200 million is expected to be spent on development projects, € 4,907.4 million on social benefits, € 240 million on e-government projects and € 565.4 million for business support (implementation of projects).

Describing the main goals, the Ministry of Finance says that the proposed state budget continues the implementation of important projects and programs, the sustainable recovery from the crisis caused by the COVID-19 pandemic and dealing with its economic and social consequences. Other budget goals are the stabilization and reactivation of the economy and the implementation of structural reforms, in order to lay the foundations for recovery and job creation in conditions of social cohesion.

In relation to employment policy, it is noted that 2021 budget continues to include measures to contain employment and the amount of benefits and allowances. The Government also stops hiring temporary staff, aiming to cover the needs of the public service in staff by filling permanent positions.

It also continues not to offer general salary increases and attempts to contain other direct or indirect salary increases.

The fiscal risks, according to the presentation of the Ministry of Finance, are a possible outbreak of the coronavirus pandemic in Cyprus, resulting in the deterioration of economic activity, as well as the challenges facing the banking sector due to the very high percentage of non-performing loans (despite the significant reduction achieved).

Also, the Ministry points out the challenges and excessive costs that may arise from the improper operation of the General Health Scheme (GHS) and the increased flow of migrants.

The main categories of expenditure in the 2021 budget concern, inter alia, personnel expenditure of € 2,946 million (27.9%), operating expenditure of € 896 million (8.5%), transfers of 2,982 million (28, 2%) and loans amounting to € 2,426 million (23%).

(CNA)

Source: In-Cyprus

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