The 2023 Budget in the vortex of the elections

The government of President Anastasiades has just submitted its final budget, for 2023. DISY will undoubtedly support the budget, but it will be interesting to see what position it will take if and when the polls are confirmed. Will DISY have a strong opposing profile or will it support whatever the Government itself has to offer? There are undoubtedly questions that will be resolved in a few months. The 2023 Budget was created in the midst of a crisis, the third one in the past ten years. The denominator of this crisis is war, precision, and inflation, which is a completely different combination of risks than the previous two crises.  Looking back at the previous ten years' budgets, you will notice that until 2016, budgets were prepared on the basis of the Memorandum and the banking crisis of 2013. Only from 2017 to 2019 were budgets without a crisis in the denominator, whereas from 2020 to the present Budget, the denominators were the pandemic and Ukraine crises. In particular, the 2023 Budget must deal with the pandemic, the Ukrainian crisis, and all of this in an election year.

Although Finance Minister Constantinos Petrides was unable to attend the start of the three-day process, which culminates with the vote on Thursday, December 8, due to Eurogroup and Ecofin commitments, he sent multiple messages to the next government during his opening speech on Friday. As he stated, the Government's latest Budget is being tabled at a time when the global economy is changing and the world is entering a very difficult period. He described it as a time when we must not only correct our own mistakes, as Cyprus has done in the past, but also respond to international challenges.  "As a government, we are delivering a robust economy with positive growth rates and low unemployment, but we are also presenting significant challenges to the next government," he said.

Increase spending while reducing debt

This year's Budget includes an increase in spending but a decrease in the cost of servicing the public debt. According to the Finance Minister, the primary expenditure in the 2023 Budget is up by about €550 million from the 2022 Budget. Appropriations for development projects, in particular, are increased by about 12% over the 2022 Budget. Appropriations for social protection have been increased by about 4%, as he explained, with the introduction of the EEO and the GES, as well as the provision of targeted benefits.  Social protection appropriations total €760.5 million, representing a 0.4% increase over the 2022 Budget but a 21% increase over the 2018 Budget. At the same time, operating expenses rise by about 15%, owing primarily to increases in the prices of both raw materials and most goods and services, including increases in the prices of energy products and supply chain problems, as explained by the Ministry of Finance.

What's more, as Petrides points out, public debt servicing costs (interest and loan repayments) are €500 million lower than in 2022. The Minister stated that the targeted support for households and businesses to address the effects of inflation would reach 400 million euros in 2022. The public debt is expected to be limited to 89.3% of GDP by the end of 2022, down from 103.6% in 2021. According to Treasury projections, it will be 83.3% of GDP by the end of 2023, 76.5% by the end of 2024, and 72.3% by the end of 2025. In terms of growth, it will slow to around 3% in 2023 and then rise to 3.3% in 2024 and 3.2% in 2025.

The fine print

The budget calls for €11,759.3 billion in revenue and €11,296.0 billion in spending. According to the Budget's key highlights, there are overruns of 30.2 million (2023), 170.8 million (2023), 170.8 million (2023), and 170.8 million (2023) between the total appropriations of the 2023 Budget and the Medium-Term Financial Framework 2023-2025 and the total expenditure ceilings set by the Council of Ministers (2025). (In 2023, the overruns are primarily due to budget overruns in the Ministries of Labour and Social Insurance (22.1 million), Education, Sports and Youth (18 million), Health (14.2 million), Defence (13 million), and Justice and Public Order (6.4 million).  As stated by the Ministry in its remarks, given the great uncertainty surrounding international economic developments, it is critical to adhere to the expenditure ceilings per department as defined in the Budget.

Personnel spending, including pensions and bonuses, is expected to rise 4.7% to 3,193.7 million in 2023, up from 3,048.8 million in 2015. (2022). The above increase is primarily due to the payment of the ATA, increments, and an increase in employment. Operating expenses are expected to rise 15.5% to 1,099.7 million in 2023, up from 951.6 million in 2022. The increase is due to inflationary revaluations caused by increases in fuel prices, energy products, and supply chain shortages.  Transfer payments primarily consist of social benefits, grants to public and private law organizations, and grants to local governments, as well as government contributions to various funds (Social Security and GIS), and our contribution to the EU budget. The above category is expected to grow by 3.8% in 2023, from 3,047.4 million in 2022 to 3,163.5 million.

Development spending (projects under construction, co-financed projects, training, educational institution sponsorships, fixed assets, etc.) is expected to rise by 12% in 2023 to 1,273.4 million, up from 1,137.6 million in 2022.  The above increase is due to the start of major development projects such as road, building, and other projects, as well as to promote projects included in the Recovery and Resilience Plan. In addition to the primary expenditures listed above, expenditures for public debt servicing (interest) and loan repayments (external and domestic) are expected to fall by 21.5% in 2023, to EUR 1,914.5 million from EUR 2,441.5 million in 2022. 

[This article was first published in Kathimerini's Sunday edition and was translated from its Greek original]