Filenews 8 August 2024 - by Theano Thiopoulou
Caustic, critical and particularly worrying are the estimates of the Fiscal Council on the recent decision of the Government for new salary increases for civil servants, which further increase the cost of the state wage bill and even without detecting any parallel move to improve the productivity of the state machinery.
In the interim report (August 2024) issued yesterday, it is noted, inter alia, that "the continuation of the increase in the cost of the state wage bill, especially without the parallel increase in the quality of the state machinery, is one of the most serious concerns for the course of public finances in the coming years. Taking into account the fact that inelastic expenditures continue to increase in absolute amount, but mainly as a percentage of the total expenditure of the state, the imbalance created will require serious and probably politically difficult decisions, as evidenced by the IMF's analysis – at the invitation of the Republic.
The Fiscal Board reiterates the positions expressed in the 2023 final report "... that society does not necessarily derive a correspondingly higher benefit in volume or quality of services resulting from the increase in its expenditure on the state wage bill. That is why the total digital reform of the state machine itself, which is absent from the plans, must now be considered a serious priority. Through such reform, an increase in the benefit to society corresponding to the increased costs can be ensured. Otherwise, public wage conditions will be jeopardised, with the only question being when this will happen and under what conditions."
"Today, the state payroll accounts for 24.7% of the Republic's total expenditure. Based on World Bank data, personnel costs in Cyprus amount to 28.8% of GDP, compared to the European average of 15.4%," the interim report said.
The picture recorded by the Fiscal Council is of particular concern for the next day. Based on this picture, the overall growth of expenditure in the Republic is slower than the growth of revenues, but the composition of expenditure (and the source of savings) favour structural weaknesses in public finances, and, above all, gradually create imbalances in the structure of public finances. While debt sustainability is not in question, a potential continuation of the current path is likely to lead to politically, socially and macroeconomically painful decisions in the coming years to correct structural weaknesses and secure the fiscal space needed by the government for policy.
