Filenews 13 March 2022 - by Eleftheria Paizanos
The invasion of Ukraine, the sanctions against Russia and the consequences they cause may overturn the state's economic plans. On the occasion of the preparation of the reconciliation framework of the budget for 2023 and the medium-term fiscal framework 2023-2025, the Ministry of Finance is giving the guidelines to the other ministries on the line to be followed next year.
As you know, the framework for reconciliation is the basis for setting the ceilings of budget expenditure. The Ministry of Finance, in its circular dated February 28, that is, four days after the outbreak of war, stresses that the new spending ceilings should not exceed the spending ceilings of 2022. As he points out, government spending should be maintained at the same level, due to the challenges faced by the Cypriot economy, including the pandemic, as well as the fact that the European Commission is expected to reintroduce (this decision is probably postponed after the invasion of Ukraine) the implementation of the provisions of the Stability and Growth Pact, with emphasis on compliance with fiscal rules, through the spending rule. As can be seen from the circular, the risks that will arise for the Cypriot economy due to the Ukrainian economy have not been included (obviously due to the time of its drafting), something that may happen in the coming months, with other decisions of the Ministry of Finance but also after evaluating any tools that the Commission will give to the Member States to mitigate the consequences of the new crisis.
According to the circular, signed by the Director General of the Ministry of Finance George Pantelis, the proper preparation of the reconciliation framework is very important, because it will help the Minister of Finance to formulate his final recommendations for the expenditure ceilings that he will submit for approval to the Council of Ministers, taking into account the fiscal capabilities of the state.
Prioritisation
The Director-General of the Ministry of Finance calls on the other ministries to prioritise their priorities, taking into account the constraints or possibilities that exist in the implementation of their new budget and the new medium-term financial framework. At the same time, Mr. Pantelis says that the basis for the preparation of the 2023 reconciliation framework will be the existing medium-term fiscal framework 2022-2024. Essentially, he points out, next year spending ceilings should be at the same level as this year, while for 2025 the spending ceiling should be at the same level as 2024 spending. However, the state payroll, policies, contracts and projects can be excluded from the differentiation of expenditure.
In detail, exceptions from the differentiation of ceilings can be the following:
- The cost of the payroll. For its calculation, only changes that significantly affect the expenditure ceilings of ministries, deputy ministries and government departments should be taken into account. As stated by the Ministry of Finance, a significant number of new posts that have been approved and are not included in the existing medium-term financial framework 2022-2024, as well as savings, depending on the course of filling the posts, given that for 2023 and 2024 for all vacant posts, provision has been included for 12 months (the provision will be for three months of first appointment and first appointment and promotion for 2023, while for promotion posts the welfare will be for six months).
- Policies that have been approved after the approval of the state budget of 2022, with decisions of the Council of Ministers, for the implementation of which an effort should be made through savings.
- Existing contracts or projects of high value, in addition to €1 million, that have changes in contracts, such as bus contracts, maintenance contracts and service markets.
- Projects that have been awarded and have significant revisions in their financial flow.
- Changes to projects and projects in excess of €0.5 million, which were budgeted but will not be implemented in 2023, due to the change of plans. For example, the project may be cancelled and the project terminated.
Other parameters
In addition, the ministries for the preparation of the reconciliation framework should take into account some additional parameters. Among other things, they should take into account co-financed projects, for which the managing authority is the Directorate-General for Development (formerly EPCD), in the budget of which a centralised provision for the allocation of the relevant expenditure to other ministries and departments was included. At the same time, the competitive programmes already approved, as well as the rural development programme projects, are included in the services' budgets and should be taken into account in the setting of the ceiling.
In relation to the Internal Affairs Funds, a centralised provision has been included in the budget of the Ministry of Interior for their distribution to other services. With regard to legal persons of public law and state-sponsored state-sponsored bodies, the handling of this sponsorship should be carefully assessed. At the same time, ministries, according to the circular, should place emphasis on the implementation of the projects and reforms included in the Recovery Plan.
Beware of increases in raw materials
The Panteli circular also indicates that due to the increases in the prices of raw materials, which affect the construction cost of the projects, every effort should be made to integrate their increased expenditure into the designated ceilings, through the rationalization and redistribution of existing projects and policies. "It should be taken into account that in 2023 a number of existing projects are expected to be included in the budgets of ministries, deputy ministries, departments and departments to be completed. Therefore, only projects of the Recovery Plan and ongoing projects of EXANTAS should be included in the budgets and not any other new projects", adds the Director General of the Ministry of Finance. Finally, the strategic units of each ministry and deputy ministry should evaluate the proposals of their departments, in total, and send to the Ministry of Finance only the significant changes, as during the preparation of the 2023 budget they will have the possibility of redistributing the ceilings between their departments, covering lesser needs.
