The state budget is a tool for exercising fiscal policy and promoting the governance program and plans of each government.
It is understood that there are specific parameters within which the state budget must move, while the participation of Cyprus in the European Union makes it obliged to apply the principles of the Fiscal Pact.
It should be noted that due to the pandemic there have been easing by the European Commission (EU) towards the objectives of the Fiscal Pact, but the gradual improvement of the European economy and the increase of inflation will lead to the gradual “picking up” of the emergency measures adopted by the EU by 2024, but also by the European Central Bank.
Cyprus as an external economy is significantly affected by any negative developments, especially in countries economically associated with it. The pandemic crisis is different from the previous ones as it affects the economies as a whole. Important sectors of the economy have been significantly affected, with the big bet remaining the reactivation of the local production units, the transformation of the economy, taking into account the new economic and political data that are being formed and the return to sustainable, positive growth rates.
According to the Ministry of Finance, the Cypriot economy is expected to grow by 4% in 2022 (a year of theoretically complete recovery after the spread of the virus, meaning of course that there will be no epidemiological burden), while for 2023 and 2024 the positive growth rate is expected to fluctuate between 3.4% and 3.0%, respectively.
At the same time, according to the preliminary draft budget and the Medium-Term Financial Framework, it is expected to present financial deficits of € 1.2 billion in 2022, € 1.5 billion in 2023 and € 1.7 billion in 2024. It is very important to analyze government spending and avoid additional budgets that will aggravate the situation, which is mainly observed in election periods.
It is particularly important to have a sensitivity analysis, especially with regard to government revenue. To do this it is important to analyze revenue by sector and how it is affected by market trends and changes in the external environment.
Public debt for 2021 is estimated to decrease significantly and be limited to 107.8% of GDP compared to 119.1% at the end of the previous year. Taking into account the above, the reduction of the public debt to GDP ratio of the country will be due to the repayment of loans by the end of the year over 600 million euros and the strengthening of the denominator through the recovery of the economy.
Creating a flexible and efficient government machine enhances the business environment and the quality of services offered to citizens. That is why the bills concerning the reform of the state mechanism and the adoption of simple and short procedures should be promoted, while strengthening the e-government.
The spread of the virus has shown that we can adapt to the new order of things and the use of electronic media and I hope that this dynamic that has been created will continue.
Cyprus in the current circumstances has the opportunity to reorganize and create a more flexible economy, significantly differentiated. The funds available to the Cypriot government through European funds give it this opportunity, provided that the plan that will be prepared is sustainable and practically applicable.
Development expenditures are expected to increase by 10% in 2022 compared to 2021. The above increase is observed due to the start of the implementation of major development projects including road, construction and other projects as well as to promote projects included in the Reconstruction and Reconstruction Plan. .
The budget reflects the policies that a government wants to pursue, always keeping in mind the budgetary limits to which it can move and the international organizations to which it belongs.
It is important that the budget makes rational use of financial resources, provides incentives for economic activity and, of course, takes measures to improve government services to citizens.
Better targeting of government spending in areas of a multiplier nature and enhancing the efficiency of public service processes lead to the liberalization of the economy's productive units and growth.
In addition, it is important that the budget is designed in such a way that it is possible to absorb any negative developments and shocks in the global and domestic economy.
Properly assessing the progress of budget implementation enables governments to take corrective action where and where needed. In this direction, it is necessary on the one hand to have the mechanisms for evaluating the progress of the budget in all ministries and on the other hand, the mechanisms for controlling government expenditures, in order to create the appropriate embankments in case of negative developments.