Filenews 19 September 2021 - by Eleftheria Paizanos
The coronavirus pandemic has brought the economic plans of Cyprus, as well as of all countries, to a back burner. What they managed to build in previous years with strict fiscal policy has been shattered, as every month countries spend millions of euros to deal with the effects of the pandemic. The Commission and the ECB, in an effort to help European Union member states, have made fiscal and other relaxations so that countries are more flexible to deal with COVID-19.
In particular, they allowed budget overruns and deficits, as well as additional cheap borrowing, above the limits considered higher than 2019 to be unavoidable.
Implementation of the Stability and Growth Pact is expected to resume in 2022, which is a concern for Member States, as in the midst of the pandemic, they will be forced to return to the implementation of strict fiscal policies.
In Cyprus, in the last 18 months, additional costs have been given, in addition to €1.8 billion for the implementation of employee support plans, the granting of a one-off grant to businesses, for the conduct of diagnostic tests (rapid test and PCR test), for quarantine hotels, for medicines and for vaccines. Finance ministry technocrats believe the pandemic is one of the fiscal risks that will affect the government's economic planning for 2022 and create a negative impact on public finances. According to the finance ministry, any outbreak of the coronavirus pandemic in the country will result in a further deterioration of economic activity.
The Ministry of Finance goes and comes to the Parliament
From the data collected by "F", it seems that so far the state has addressed parliament nine times, during the pandemic, asking for the approval of supplementary budgets, totalling €1.5 billion. Although the Law on Fiscal Responsibility provides for the submission of only two supplementary budgets per year, last year and this year, due to the fiscal relaxations decided by the Commission in March 2020, nine supplementary budgets were submitted to enable the state to meet the needs arising from the coronavirus.
Under the law, the Minister of Finance has the right to submit for a vote a supplementary budget before 15 June, when special circumstances apply, such as an unusual event beyond the control of the Republic and has a significant impact on the fiscal situation of the general government or in times of severe economic recession.
The 9 complementary
Of the nine supplementary budgets submitted to Parliament by the government in the last 18 months, 5 were tabled in 2020 and this year so far 4. Specifically, in March 2020, during the first lockdown, parliament approved additional appropriations of €369 million, which burdened the budget by 1.3% of GDP. The additional appropriations of €369 million are not enough and were channelled for the granting of "Special Leave" to parents working in the private and public sector, for the care of children up to the age of 15 (up to the third grade of high school) due to the suspension of the operation of schools, public and private, nursery and child care centres (€40 million).
Moreover, an amount of €110 million was given for the implementation of the suspension plan to businesses that had suspended their operations and to companies which, although they continued their operation, had a 25% reduction in turnover. The aim of the plans was to prevent workers from being made redundant.
It is worth noting that workers whose workplaces were closed due to the lockdown were granted unemployment benefits. €10 million was also given for the implementation of the Small Business Support Plan. The scheme was aimed at companies employing up to 5 people, provided that they keep their employees at work and have suffered a reduction in their turnover of more than 25%. At the time, the government subsidised 70% of their salaries.
Funds of €16 million related to the payment of sickness benefit, on average €800 per month, to a number of eligible employees. €100 million was also given. for the strengthening of the health sector and for the employment of additional medical, nursing and support staff, reinforcement of equipment and material and technical infrastructure, reinforcement of the Institute of Neurology & Genetics in human resources and logistics. Another €15 million were paid for the Student Accommodation Allowance abroad, amounting to €750per student, which related to the coverage of the expenses of students who studied abroad and did not return to Cyprus during the Easter holiday period, as well as €11 million. for the recovery of tourism.
The second supplementary budget of 2020 was €220 million, for the implementation of plans to support businesses, workers, students, health and the economy in general. The burden on the budget balance amounted to 1.1% of GDP.
The third supplementary budget of 2020 provided for additional appropriations of €231.1 million. and has imposed a burden on the budget balance of 1.14% of GDP. The money from the third budget was channelled for the continuation of the government's plans to support employees with €150 million, to meet requests submitted by Independent Services/Ministries/Ministries/Deputy Ministries/Departments to the Ministry of Finance, to cover additional needs for social benefits, health benefits, as well as other expenses. At the same time, the number of posts in the public sector were abolished and upgraded, the number of teachers increased by 243 and nine new positions of public prosecutors were created in the Legal Service, a new position of quality assurance officer at the Deputy Ministry of Tourism, and a new position as supervisor in the Wine Products Council.
The fourth supplementary budget of 2020 provided for the provision of additional appropriations of €667,000 for the recruitment of 200 Contract Soldiers (SYOP), but it was voted down by the Parliament.
The fifth supplementary budget provided for additional appropriations of €254.2 million. The burden on the budget balance since the adoption of the supplementary budget amounted to 0.2% of GDP.
It exceeded €0.5 billion.
Compared to this year, so far the additional appropriations have reached €510.2 million. This amount does not include the additional appropriations of €200 million, which were incorporated in the revised state budget of 2021, in the context of the need to support businesses and self-employed persons, due to the implementation of measures to address the ongoing pandemic.
Appropriations of €20 million were also included. to provide support and a wider stimulus to the economy. In detail, this year, the first supplementary budget approved by the Parliament was €250 million. The money had been channelled to support businesses, workers and the health sector. The second supplementary budget was approved a few weeks before the parliamentary elections and provided for the allocation of additional appropriations of €148.5 million, spent on social, health benefits, agricultural payments and various other needs. The second supplementary budget also provided for the creation and upgrading of a limited number of jobs, including the creation of the post of Deputy Minister of Social Welfare and Director-General. Moreover, the third supplementary budget, which was one of the first pieces of legislation approved by the new Parliament, provided for the granting of additional appropriations of €20 million to support the fire victims, from the great fire that broke out last summer in mountainous areas of the districts of Larnaca and Limassol and in the district of Pafos.
Budget impact, overruns and deficits
The fiscal easing that existed in 2020 and 2021, as part of the government's policy to address the health crisis from the pandemic, has had an impact on both the 2022 state budget and the Medium-Term Fiscal Framework (MDA) 2022-2024. The draft state budget for 2022 has funding deficits of €1.2 billion. (2022), €1.5 billion (2023) and €1.7 billion (2024). As indicated by the ministry of finance, public debt remains high, calling on ministries to adhere to spending ceilings. As he points out, between the total appropriations of the budget for the following year and the total ceilings set by the Council of Ministers, there are overruns of €70 million. (2022), €248.2 million (2023) and €348.4 million (2024). In 2022, the overruns are mainly due to the overruns from the ceilings in the budgets of the Ministries of Education (€24.4 million), Interior (€19 million), Labour (€17.1 million), Justice and Public Order (€16.1 million), and Energy (€8.7 million).
Bets on reforms and the Recovery Plan
It is worth noting that the government side is betting a lot on the implementation of the National Recovery Plan, through which the state will raise an amount of €1.2 billion by 2026. Government sources estimate that the reforms and projects included in the fund will be a tool to support businesses and self-employed people affected by the pandemic.
Within two months, the Parliament will have to approve 23 bills, including the reform of the public service, the judiciary and local government, in order to disburse in 2022 an amount of €190 million.
