Our economy receives a positive assessment and we must maintain and continue this, emphasized the Minister of Finance, Makis Keraynos, who referred to his vision to help Cypriot industrialists, small and large, to invest more and cooperate with foreign investors , because Cyprus can produce too much, as he said.
In his lecture on Thursday evening at the University of Cyprus, which was organized by the University's School of Economics and Management, in the context of the “Annual Lecture of the Minister of Finance”, Mr. Keravnos emphasized that “it is a key advantage for Cyprus to be able to continue, as a small country, the development path”, to serve the needs of its people but “also to be able to play some international role and a role within the EU”.
However, he stated that “it is the deficit in the current account is worrying” and we will have to deal with it, adding that “we will have to look at what we produce in Cyprus”, while expressing the opinion that “we can produce too much”.
“To bring foreign investment, but my vision says that we should – and I have taken some first steps – gather Cypriot industrialists and artisans, small and large, and ask them what they need to invest more,” he said. he added that we should “find foreign investors who will want to cooperate with Cypriots and create infrastructure in Cyprus and production units”.
He noted that by diversifying the economic model to some extent, we will be able to deal with the deficit in the current account balance.
In addition, Mr. Keravnos revealed that the Ministry of Finance and the Government have seen “with more attention” the the fact that the net investment position of Cyprus amounts to 100% of GDP and “thoughts and proposals are being made to see how we can deal with this issue”.
The Minister of Finance explained that “this indicator shows that the money leaving Cyprus is much more than what is coming in” and that “our imports are much lower than our imports” and noted that this indicator should with the EU at 35%.
“It's an indicator that not all of us are monitoring as much as we should,” he added.
In his lecture, the Minister of Finance referred, among other things, to the main priorities and objectives of the budget for 2024 and the Medium-term Financial Framework (MDF) 2024 – 2026, but also on the main macroeconomic and fiscal risks.
The Minister of Finance during his lecture focused on three topics, the state budget preparation cycle, the economic policy of the EU – Cyprus and the elements of the state budget 2024- 2026.
In addition, he referred to the need to have surpluses due to the ongoing challenges and noted that from 2025 the payment of an amount of €6.3 billion that we borrowed from the European Support Mechanism since the financial crisis will begin, a payment that will last until 2030.
Regarding green and inclusive growth, which is part of European economic policy, Mr. Keravnos said that the green tax reform is about the gradual imposition of taxes on fuel, water and in sewage and added that Cyprus should introduce fuel taxes this month.
“You realize how contradictory this is at a time when fuel prices are going up, when the Government comes with measures to alleviate the level of fuel prices, for the Government to come and impose taxes”, he underlined.
He said that “our effort is to move this issue to the end of the first quarter of 2024 and we are trying to see how we will deal with it”, adding that “the impact may be neutral on public finances but I don't know if it will be neutral on households” .
The MFA referred to this point in a meeting he had with the Finance Ministers of Germany and France recently, during which he told them that it is difficult for Cyprus to implement green taxation which aims to push people to use public transport as Cyprus does not have public transport, as a result of which the two Ministers were surprised.
Mr. Keravnos explained to them, as he said, that “Cyprus is a small country and has been divided for 50 years and, while we are an EU territory, we are occupied as a result of an invasion by a third country and this prevents us from planning this issue as well like many other issues”.
The Ministry of Finance spoke about the need to pay attention to the amount of the state payroll in order not to reach, as he said, a percentage of budget expenditures where 50% will be the payroll .
He also referred to the “very good position in which the banks find themselves in this difficult time with very good capitalization and with a liquidity”, adding, however, that “their profits are constantly increasing through the interest rate increases set by the ECB”.
“We want a robust financial system because it is the nervous system of the economy and is monitored by rating agencies,” he added.
Stating that economic uncertainty due to geopolitical developments continues, the Ministry of Finance emphasized that with a view to ensuring fiscal stability, “so that we are able to face any challenges”, the 2024 budget and the 2024-2026 MDP were prepared with some key priorities in mind .
These priorities, according to Mr. Keravnos, are the fiscal balance to be in surplus, the retention of employment in the Public Sector, the reduction of public debt in the medium term, the implementation of important infrastructure projects with significant added value, with a particular emphasis on the promotion of co-financed projects and projects of the Recovery and Resilience Plan (RESP), promoting the green transition and digital transformation, creating conditions for sustainable growth in key sectors of the economy, and maintaining a sound financial system.
Regarding the main macroeconomic and fiscal risks, the Ministry of Finance said that these are the continuation or imposition of new sanctions on Russia and Belarus, with direct and indirect effects on the European economy, including Cyprus.
These effects, according to the Ministry of Finance, include the significant increase in inflation, which erodes the real income of citizens, with negative effects on consumption and state revenues, and the further increase in interest rates, leading to a slowdown in economic growth, with resulting in the reduction of government revenues.
He also referred to a possible burden on public finances by the National Health Service, mainly through the transfer of obligations of the National Health Service to the state budget and/or non-assurance of obligations provided for by the National Health Service from the overall budget of the OAU and from the potential obligations to the Republic that may arise from court cases pending before the Court and concern cases in relation to decisions of the Financial Institutions Resolution Authority.
In addition, he referred to the effects of a possible increase in migration flows, a burden on public expenditure due to consequences of climate change such as natural disasters and the need for compensation in the agricultural sector, and a possible need for additional social measures to support the population due to ongoing inflationary pressures.
In relation to the main goals that the 2024 Budget and the 2024-2026 MDP want to achieve, the Ministry of Finance said that these are the recovery from the Russian-Ukrainian crisis, including addressing the challenges created by inflation, maintaining healthy public finances to meet future challenges, the continuation of the downward trend of public debt as a percentage of GDP and the strengthening of the green economy, digital transformation and research and innovation, with an emphasis on the implementation of reforms and investments of the Recovery and Resilience Plan, and projects financed by other European Funds.
Furthermore, he said that these also include the continuation/initiation of major projects and actions such as major road/construction projects, water projects, e-government/digitization projects financed from national resources and the implementation of structural reforms (e.g. Local Government, Public Service and Justice), so as to lay sound foundations for recovery and job creation, in conditions of social cohesion.
As the KYPE reports, during his presentation, the Ministry of Finance initially referred to the importance of the annual budget and the MDP, saying that they are an important economic policy tool in terms of intended Economic Objectives for growth, employment, etc., they define key policy objectives and prioritize the priorities of each Government.
In addition, he said that the budget should be consistent with EU economic guidelines (e.g. growth rate of public expenditure in relation to budget deficit).
Subsequently, Mr. Keravnos referred, among other things, to the main milestones of the preparation of the budget, the expenditure and revenue categories and the timetables for submitting the supplementary budget as well as the proposal of a new economic governance framework by the European Commission, which aims, as he said, to addressing the weaknesses/shortcomings of the Stability and Growth Pact rules, which were highlighted by the recent crises.
He referred to the green tax reform concerning the phasing in of a carbon tax for the period 2021-2026 for all fuels used in the sectors of the economy and the adoption of fees for activities that consume natural resources or pollute the environment, etc., as well as granting targeted compensatory measures making the reform fiscally neutral.
Finally, Mr. Keravnos referred to the forecasts of the Ministry of Finance for 2023 and 2024 in relation to the growth rate of the economy, the unemployment rate, inflation and the fiscal balance.
