The state budget for 2017, the first budget after the exit of Cyprus from the memorandum in March 2016, and the Medium-Term Financial Framework (NDP) 2017-2019, were approved tonight by the Council of Ministers.
The state budget for 2017, which is based on the guidelines of the Strategic Fiscal Policy Framework 2017-2019 approved by the Council of Ministers on 13 May 2016, is balanced, with a marginal deficit, and emphasizes the implementation of development projects that have all provinces, including co-financed development.
The 2017 budget aims to help the Government achieve its strategic goal, which is to ensure the conditions for sustainable development by further improving competitiveness, increasing employment and reducing unemployment. The key is the further consolidation of the financial system and the consolidation of the confidence of foreign and local investors.
According to the fiscal targets of the Strategic Framework Policy 2017-2019, public revenues for 2017 will amount to € 6.964 million, compared to € 6.839 million in 2016, showing an increase of 1,1%, while total public revenues General government expenditures are projected to increase to € 7.069 million compared to € 6.891 million in 2016, recording a change of 2,3%.
The primary expenditures of the Central Government for 2017 have been set at € 6.150 million compared to € 6.054 million last year, showing an increase of 1,6%, while the total budgeted expenditures amount to € 7.139 million in comparison with budgeted expenditures of € 7.392 million in 2016, showing a decrease of 3,4%, mainly due to a reduction in average financing costs and consequently a further reduction in interest costs.
The fiscal balance in 2017, according to estimates, is projected to be marginally deficit and not to exceed 0,6% of GDP, compared to an estimate for a deficit of 0,3% in 2016.
It is noted that the budget for 2017 does not include the revenues from the special staggered contribution imposed on the public and private sector as well as the real estate tax, totaling € 175 million, which are abolished.
Expenditures to service the public debt (interest) are budgeted for 2017 to decrease by 13,3% and reach € 499 million compared to € 576 million in 2016 due to the reduction of the average borrowing cost.
In particular, revenues from the category "income and property taxation" for 2017, are estimated to remain at about the same as last year, reaching € 1.706 million from € 1.704 million in 2016, while revenues from the category "production and import taxes" are expected to show a positive change compared to the previous year of 1,7% and reach approximately € 2.694 million compared to € 2.645 million in 2016 due to increased employment and disposable income that is expected to continue to have a positive effect on private consumption.
In relation to expenditures, among others, staff remuneration is projected to increase in 2017 to € 2.342 million from € 2.258 million in the previous year, recording an increase of 3,7%, while social expenditures are projected to increase to € 2.573 million in 2017 compared to € 2.539 million last year, recording an increase of 1,3% mainly due to an increase in pension beneficiaries.
The projected expenses, excluding loan repayments, by economic activity, for the years 2018 and 2019, are estimated to amount to € 7.298 million and € 7.552 million, ie they present an annual increase of 3,2% and 3,5% respectively.
Medium term prospects of the economy
Regarding the medium-term outlook of the economy, the basic macroeconomic scenario for the three years 2017-2019 predicts the growth rate to be around 2,8% annually, the inflation rate for 2017 to reach 0,5% and the years 2018 and 2019 to accelerate to 1,5% and 2,0%, respectively.
For 2017, the unemployment rate is expected to be around 11,0%, in 2018 to be reduced to 10,0% and in 2019 to further decrease to 9,0% with the absorption of young people in the labor market and long-term unemployment to great challenges remain.
Main potential risks
Regarding the main potential fiscal risks that lurk for the Cypriot economy and may negatively affect it are:
1. Potential negative macroeconomic developments that will lead to a lower (than expected) growth rate and consequently will have a negative impact mainly on the performance of public finances, unemployment and the development of public debt.
2. Contingent liabilities arising from state guarantees granted by the state in previous years to state-owned companies, state agencies and local government.
3. Contingent liabilities that may arise from court decisions registered against the Republic of Cyprus.
4. Negative financial performance of public law entities, Local Authorities and Public-Private Partnerships.
Moreover, according to the MDP, the projected revenues for 2018 are estimated to amount to € 7.274 million and in 2019 to € 7.692 million, ie they show an increase of 4,5% and 5,7% respectively.
Source: KYPE