The image of a resilient Cypriot economy, with currently satisfactory performance, which is surrounded by worrying developments in the international economy, must be the central axis of the approach to the 2023 state budget, the Fiscal Council emphasizes, while warning that the current image of the of the Cypriot economy “should be treated as temporary, as the international economy is issuing serious warnings that the coming years will bring greater and wider challenges”.
Despite the fact that there is a surplus, in public finances “given the clouds on the horizon of the global economy, there is no cushion”, states the Fiscal Council, in its announcement before the completion of the State Budget for 2023 and the Medium-term Fiscal Framework 2024- 2025.
The Council emphasizes that “the Republic has increased revenues this year, but it will need them, and this is certain, within the next 24 months”, underlining that “with these data, it is clear that the approach to the state budget must be governed out of caution and prudence and that it would be wiser to avoid over-optimistic estimates, including theoretical increases in government revenues”.
“On the contrary, fiscal policy should focus on growth, targeted protection and employment, with primary surpluses supported by investments in the real economy,” he says and adds that a conservative fiscal policy is also consistent with the recommendations of the European Fiscal Council .
The fact, as he mentions, that the rating agencies have started to include these risks in the evaluations of the Cypriot economy, is a natural consequence of external pressures.
In addition, the Fiscal Council states that “horizontal measures are socially unfair, contrary to the objectives of the Green Transition, ineffective in terms of their stated objective and wasteful” and adds that “the taxpayer pays to serve a socially and environmentally unfair policy, while in addition the economic stability of the country is put at risk in the coming years”.
It also states that “the policy of supporting households with low economic displacement and small and medium-sized enterprises is economically wiser and socially and morally fairer and should be preferred”.
Referring to the current state of the Cypriot economy, the Fiscal Council states that it “continues to show endurance and resilience in the face of the ongoing difficulties recorded in 2022, even though these followed two already difficult years of reduced growth”.
“Both the real rate of growth and employment continue to move at satisfactory levels, with the Cypriot economy continuing to perform very well compared to our other partners in Europe and the Eurozone, despite the ongoing difficulties due to inflationary trends and supply chain disruption,” he adds.
In addition, it states that public finances continue to inspire credibility and stability, with no serious fiscal developments despite the conditions of the last 36 months and increased spending to deal with the health and then inflationary crisis.
Finally, the Board reports that the USA is already under increased pressure, while it is possible that it is already in recession, the strength of the stock markets has already started to show the first serious cracks, the EU and the Eurozone are under high pressures, with the possibility of a recession now visible and the monetary authorities will continue to move towards monetary contraction policies, while the situation in international trade remains an important problem, where we are already seeing a decrease in exports from China.