Cabinet approved state budget

The Council of Ministers approved on Friday the 2023 state budget which is the greenest ever submitted, Minister of Finance Constantinos Petrides said.

Speaking to the press after the Cabinet meeting, Petrides said that the 2023 budget, despite the uncertainty, the challenges, and the different crisis, it is increased by 524 million euro compared to 2022.

The budget, which is the tenth and last of the current government, has the most development expenditure ever, he said, adding that they are  increased by 12% compared to 2022.

He also said that the 2023 budget is "the greenest the Republic of Cyprus has ever had".

"It is the budget, which includes the most digital transition projects, but also the biggest social state, which is increased by 5% compared to last year," he noted.

But at the same time, he said, we are giving very healthy macroeconomic data.

"All this is happening at a time when the public debt has decreased from 104% it had reached during the pandemic to 89% by the end of the year. In the first half of the year we had a primary surplus of 0.7%," he said.

Petrides said that in 2023  despite discussions about the risk of recession in most European countries, "we foresee a significant growth rate of 3%, inflation of 3%, but also unemployment at 6.4%, with a forecast to decline to 5.7% and 5% in 2024 and 2025 in the medium term."

So far, he noted, our predictions have been correct.

He recalled that when this government came in office, it had to deal with an unemployment of 18%, budget deficits of 7% and 8%. 

He stressed that the Cyprus economy is the only economy in the EU that has achieved an upgrade in recent months. 

Meanwhile, in the written presentation of the state budget presented at the Council of Ministers it is stated that the budget was prepared in a climate of great uncertainty which is intensified by the effects of the coronavirus pandemic and the continuation of the war in Ukraine.

It is stressed that despite this and the difficult fiscal conditions, the proposed budget aims to  further strengthen the resilience of the Cypriot economy through the implementation of structural reforms and investments, which aim to the recovery and the creation of new jobs, in conditions of fiscal discipline, social and territorial cohesion.

It also says that the budget aims to address the consequences of the coronavirus pandemic (COVID-19) and Russia's invasion of Ukraine, which led to a significant increase in inflation and in particular to large increases in fuel prices. It also aims to the implementation and continuation of important projects, the completion of which is expected to make a significant contribution to the economic development and thus to the improvement of the standard of living of the citizens.

As regards the medium-term prospects for 2023-2025 it is noted that they remain positive but with a significant degree of uncertainty.

It is noted that following the improvement in 2022 compared to 2021, the economy is expected to slow down  in 2023 due to the significant challenges facing the global economy and the ongoing Russia-Ukraine war, with the growth rate increasing again in 2024 -2025.

According to the basic macroeconomic scenario, the growth rate is estimated to be around 3% in 2023, while in  2024 and 2025 it is expected to increase at  around 3.3% and 3.2%, respectively.

The rate of inflation for 2023 is estimated to be at 3.0%, while for the years 2024 and 2025 it is forecast to be at 2.0%, respectively. Regarding the  unemployment rate it is expected to decrease to around 6.4% of labor force in 2023,  in 2024  to 5.7% and in 2025 to further decrease to 5.0%.

The main fiscal risks include the loss of fiscal revenues due to a reduction in economic activity in case there is a new coronavirus wave, the increase in costs for the construction projects that the Republic of Cyprus has binding obligations to carry out, the increase in expenses to service the public debt due to the European Central Bank's (ECB) interest rate rise, the increase of Non-Performing Loans (NPLs) due to the recent increase of the ECB interest rates and the economic impact of Russia's invasion of Ukraine and the prolonged period of high inflation and high interest rates with negative effects on growth due to the sanctions imposed on Russia and Belarus by the EU, the US and the UK and the impact of the disruptions in the supply chain.