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Fiscal Council warns of adverse revision of growth projections

04/07/2022 09:00

Cyprus' fiscal watchdog expressed concern over the delays in the implementation of Cyprus’ Recovery and Resilience Plan, warning that in case of further delays it will adversely revise is economic projections over economic growth and unemployment.

In a press release issued on Saturday, the Fiscal Council noted “the issue should be addressed as urgent.”

The Recovery and Resilience plan contains a series of reforms and investments associated with the disbursement of €1.2 billion from the Next Generation EU Fund. Although the first disbursement of €85 million was scheduled for February this year, the implementation of the last prerequisite, involving the granting of access to Credit Acquiring Companies and non-performing loans services to guarantors’ financial data was delayed over a dispute between the government and the parliament.

In it press release, the Council recalled its warning in its interim report issued in June that further delays in the Recovery plan would “constitute substantive risks for Cyprus’ macroeconomic performance.”

“Continued delay in the implementation of the Recovery Plan would prompt the Fiscal Council to adversely revise its projections for growth and unemployment,” the Council had warned, noting that fiscal performance would be affected albeit to a lesser extent.

The Council projected that economic growth will reach 2.1% this year. Under its mandate the Council endorses the Finance Ministry’s annual and medium-term macroeconomic projections.

Furthermore, the Council recalled its previous letter to the Finance Minister that delays in the Restructuring Plan threatens the Finance Ministry projection over a 5.1% increase in public revenue with consequent impact on the year’s primary and fiscal balance.

The Council also recalled that the national reform programme and the Recovery plan are intertwined which underpin projections for the course of the economy and the public finances.

“It is therefore rational that in case of repeated delays in implementing these plans, the projections for 2022 should be revised downwards, reflecting the less desired results, mainly in growth and unemployment and to the public finances to a lesser degree,” the Council concluded.