Finance Ministry calls for restraint towards avoiding supplementary budgets

The Permanent Secretary of the Ministry of Finance, Andreas Zachariades has issued strict new recommendations for Ministries, Deputy Ministries and Independent Services to contain spending and avoid submitting new requests , in his circular regarding the approval and implementation of the state budget for 2025.

As he specifically states, among other things, in his circular dated 31 January, which was sent to the Directors General of Ministries, Deputy Ministries, Parliament and General Directorates, as well as to the heads of Independent Services, "the economic uncertainty prevailing worldwide due to serious geopolitical developments continues and continues to affect the Cypriot economy."

Therefore, he indicates, "it is necessary to be committed to implementing the reform effort with fiscal responsibility and readiness to address the challenges that arise."

According to Zachariades, in the context of budget preparation, expenditure ceilings were set per Ministry/Deputy Ministry/Independent Service with the aim of implementing their strategic plans.

Based on the above, he emphasises, "a comprehensive budget was prepared and therefore, requests to promote unbudgeted policies and/or projects, as well as other requests that inevitably lead to increased commitments and/or expenditures, and avoidance of submitting supplementary budgets to the House of Representatives should be avoided."

In connection with the above, it indicates, "it is recalled once again that in the context of exercising the responsibilities of the controlling officers, the containment of operating expenses should be ensured, so that within each service such arrangements can be made that will bring about savings."

At the same time, he points out that "particular emphasis must be placed on promoting reform and development projects and interventions, which will ensure the strengthening and enrichment of the economic development model", noting that "in particular, the implementation of the projects of the 'Thalia 2021-2027' investment program and the Recovery and Resilience Plan are expected to contribute significantly to accelerating growth and strengthening economic activity."

Cyprus economy prospects

Regarding the medium-term prospects of the Cypriot economy, Zachariades recalls that "according to the basic macroeconomic scenario, the long-term prospects of the Cypriot economy remain positive but with a significant degree of uncertainty."

After accelerating in 2024, it says, the growth rate is forecast to rise to 3.1% in 2025, while in 2026 and 2027 it is expected to fluctuate at 3.2% and 3.3%, respectively.

At the same time, the inflation rate in 2025 is projected to slow to 2% and remain at the same levels in 2026 and 2027, while the unemployment rate is expected to decrease to around 4.8% of the labor force in 2025, and then to decrease to 4.6% in 2026 and to decrease further to 4.5% in 2027.

"The implementation of significant domestic and foreign investments, mainly to enrich the tourism product (marinas, casinos, hotel infrastructure), the education and research sectors (interconnection of research with the real economy, infrastructure of tertiary academic and research institutions, centers of excellence for research and innovation), energy (innovative electricity production infrastructure, licenses for hydrocarbon exploration and extraction) and real estate, are expected to contribute to increasing the potential growth rate," he further indicates.

Fiscal targets

Regarding fiscal targets, the Permanent Secretary of the Ministry of Finance recalls that, "according to the macroeconomic and fiscal forecasts of the Ministry of Finance, the fiscal balance in 2025 is projected to be in surplus and amount to 2.6% of GDP, while the primary surplus is projected to be 4.1% of GDP.

The corrective balance is projected to be in surplus of 1.6% of GDP in 2025."

For 2026, he continues, it is predicted that the fiscal balance will remain in surplus and amount to 2.4% of GDP, while in 2027 a decrease to 2% is expected, while the surplus in the primary balance for the years 2026-2027 is forecast to amount to 3.8% and 3.3%, respectively.

"In corrective terms, the fiscal balance is expected to be in surplus and amount to 1.5% in 2026, while in 2027 it is expected to be 1%," he adds.

Regarding the four-year Medium-Term Fiscal-Correction Plan for the period 2025-2028, which was submitted to the European Commission on 15 October, 2024, Zachariades explains that this aims to contain net primary expenditure, with the aim of ensuring the sustainability of public finances in the medium term, underlining that "based on this plan, the growth rate of net primary expenditure for the period 2025-2028 was set at 5.2% on average."

"Based on the above, the medium-term fiscal target that has been set is expected to be achieved," he underlines.

Based on the above, he underlines, public debt is projected to decrease to 21.7 billion euros at the end of 2025 compared to 22.2 billion euros at the end of 2024 and as a percentage of GDP to be limited to 61.1% compared to 65.9% the previous year.

"The downward trend in public debt as a percentage of GDP is expected to continue in the coming years and be limited to 55.3% and 50.9%, at the end of 2026 and 2027, respectively," it further states.

Cooperation message

Finally, in his circular, the Permanent Secretary of the Ministry of Finance emphasises that "on the occasion of assuming my duties, I look forward to close and constructive cooperation, towards the common goal of smooth, productive and uninterrupted implementation of the budget."

(Source: InBusinessNews)