The coming months and 2022 will be crucial for the sustainability of the public finances, Cyprus` Finance Minister Constantinos Petrides said on Sunday as the Finance Ministry is preparing the 2022 state budget and the Medium-Term Fiscal Framework.
The budget and the next medium term Fiscal Framework is expected to be approved by the Council of Ministers before the end of September. The Ministry began discussions with the other Ministries and government departments with FinMin officials targeting a deficit around 3% of GDP from an estimated 4.7% deficit in 2021, as expansionary fiscal policy and measures to support the economy will remain in place in the midst of the continued Covid-19 pandemic. The budget balance will continue in negative territory for a second consecutive year, while the Ministry is phasing out support measures aiming to gradually return to balanced budgets.
The EU’s escape clause suspending the fiscal rules of the Growth and Stability Pact will remain in place in 2022 due to the continued pandemic with EU Finance Ministers expected to begin discussions on reinstating fiscal rules in the coming period.
In statements to CNA, Petrides said the 2022 state budget will have a growth-friendly nature and will maintain its expansionary fiscal policy albeit in a reduced and more targeted way.
Replying to a comment that the improvement of fiscal performance is not satisfactory, Petrides said this is due to the continuation of the government’s expansionary fiscal stance, which is considered as one-off due to the pandemic, but stressed that there should be a gradual exit from the expansionary policy with a view to safeguarding fiscal sustainability.
He also pointed out that the upgrade of Cyprus’ long-term credit rating was the result of the policy of safeguarding fiscal sustainability, while fiscal discipline provided Cyprus with access to the capital markets which allowed the government to create the necessary buffers to support the economy amidst the Covid pandemic.
"Therefore, the next months but 2022 as well will be crucial for the long-term sustainability of the public finances," he stressed.