Fiscal Council cautions on 2024 economic risks despite optimism

Recently, the Cyprus Fiscal Council took a close look at how our economy is doing. They gave us some important info based on their study. The Council supports the ideas that the 2024 budget is built upon, saying that these ideas could really help the economy if put into action. But, there's a bit of worry about how much money the government will make and how well the economy will grow in 2024. The Ministry of Finance is watching the money situation closely.

Despite prevailing challenges, Cyprus exhibits economic resilience outperforming some counterparts. However, risks such as a possible economic slowdown and increased imports are noted. The Council is particularly watchful of potential inflation, anticipating moderate price hikes in 2024.

The budget reflects heightened spending on infrastructure like roads and housing. While fiscal management is praised, caution is advised against excessive future spending, especially on budget items that the Council deems to be "inelastic". Such spending is difficult to reverse once commitments are assumed (e.g. government hires) and has a cumulative effect on spending in the following years. Such inelastic spending limits the fiscal room for policy spending.

Apart from raising red flags about certain spending categories, suggesting a need for careful financial planning, the Council also underscores the importance of prudent investment in the face of potential risks in 2024.

Key concerns also revolve around government debt reduction and the overall quality of spending. The Council urges meticulous planning for new social policies, emphasizing the necessity for cost-effective and targeted measures. The management of the Social Security Fund is encouraged to adopt rational practices to ensure the efficient allocation of resources.

The Council also focuses on the need to improve the quality of the Civil Service itself, as the Service remains largely "in the analog era", according to the report. Therefore, it notes, the increased cost of the civil service creates an unviable ratio between the cost shouldered by society for its maintenance on the one hand and the benefits that it receives on the other.

In a nutshell, the Cyprus Fiscal Council sees both positives and potential pitfalls in the economic outlook. It highlights a mix of optimism and caution, signaling the need for strategic economic planning and fiscal responsibility.