The Chairman of the Fiscal Council, Dimitris Georgiadis, again appealed for frugality in the disposal of the budgetary reserves in the context of dealing with the consequences of the pandemic, adding that the increase of the public debt seems to be at manageable levels.
Mr. Georgiadis presented the Council's budget for 2021 to the Parliamentary Committee on Finance on Monday, with questions focusing on the sustainability of public finances amid the pandemic.
“Since the outbreak of the pandemic, everyone has realized that significant state intervention would be needed, something about which no one disagreed. “This would increase the deficits and the debt of the government in combination with the reduction of the tax revenues due to the reduced economic activity that would follow”, said in his statements Mr. Georgiadis.
Regarding the warnings of the Council, Mr. Georgiadis focused on the fact that the government has at its disposal a “limited arsenal” and therefore “this arsenal had to be used very sparingly, ie to end up only where there is an absolute need and where it will it has a result”.
“We had brought for example that companies that would not be viable even without the crisis should not be supported, to preserve this reserve either for households or for sustainable businesses and in addition what institutions outside Cyprus emphasize is that there is the next day “.
He explained that with the end of the crisis, the fiscal rules of the European Union will return, which set limits and limits on both the budget deficit and the public debt.
“And we will start to run surpluses and the public debt should be at a level that we should be able to service,” he said.
Answering a question, Mr. Georgiadis said that the increase in public debt and the budget deficit seems to be at levels that can be reversed and public debt can be serviced and we see this from the reports of the European Commission, the International Monetary Fund and rating agencies.
Asked about the reduction of salaries in the public sector, Mr. Georgiadis said that these are purely political decisions.
“Our role is that if we see that drastic spending cuts are needed to service public debt or to meet fiscal rules in the future, we will sound the alarm and beyond that what specific measures will be taken. “The government's decision is purely a matter of political decision,” he said, adding that at this stage there is no question of spending cuts to make public debt immediately viable.
“What the government could choose to do in reducing spending is to create more leeway so that the economy can continue in the event that this crisis continues. “It would not be a suggestion of an economist at this time to reduce government spending just to create a reserve or for any other reason,” he said.
The forecasts of YPOIK are conservative
Asked about the accuracy of the macroeconomic forecasts of the Ministry of Finance, in the midst of the crisis, Mr. Georgiadis said that the forecasts so far have been conservative and that so far the goals have been achieved.
He reminded that after the pandemic there is the clause of escaping from the goals of the Stability Pact due to the pandemic, as a result of which the fiscal rules are suspended, there is no long-term goal or the debt rule.
“Technocratically we can not make any intervention and I would say neither is the right time until we overcome the crisis,” he said.
We were warning about the KEP
Asked about the naturalization program, Mr. Georgiadis said that the first intervention for the Cyprus Investment Program was in 2017, while in a Council report in 2018 there were reports about the risks involved in the program.
“In short, we made a comparison with the Dutch disease, that is, with state intervention you encourage the development of a sector, problems are created.”
We warned that if this thing continued it would have negative consequences, it would create collateral losses, we warned that it would create conditions of dependence and we warned that it could not be a permanent source of growth, either due to competition from other countries or termination by the European Commission. , he said.