CYPRUS: MPs start review of 2018 Budget

Finance Minister Harris Georgiades presented the 2018 state budget to the House Finance Committee, which expected to be approved in the first half of December.

The budget, accompanied by the medium-term fiscal framework, provides for a 3.0% growth rate, while 2017 economic growth will exceed 3.5% of GDP.

Speaking before the Committee, Georgiades said that economic recovery following the 2013 financial crisis is free from the distortions of the past, namely excessive credit expansion and deficit-driven public spending.

“Today’s recovery is free from the two basic distortions that described the pre-crisis levels. That’s why growth rates before the crisis have been described as false and unsustainable,” he said, adding that structural reforms have spared the economy from the fundamental distortions rendering the economic model more sustainable.”

Proceeds from VAT, he said, without increasing the VAT rate, are significantly higher, contributions to the Social Security Fund confirm a gradual but significant improvement in the real economy yielding an increase in public revenue that surpassed the reduction of cancellation of taxes realised this year, such as the temporary contribution of employees both in the public and the private sector.

Georgiades noted that despite IMF projections that the debt to GDP ratio will decline below 100% in two years, Ministry projections expect debt to decline below the 100% mark in a few weeks time.

He said the government will repay part of its EUR 1.18 bln loan to the Central Bank of Cyprus. Under the 2013 bailout terms, the government would have swapped the Central Bank’s debt with real estate, a move that never went through during the bailout implementation.

The budget provides for a primary surplus (excluding debt servicing costs) of 1.8% and a budget surplus of 1.8%.

Georgiades added that Cyprus’ rating is expected to enter the investment-grade category.

Responding to questions, he said the government will not revise its citizenship-by-investment scheme, despite IMF’s suggestion that this should be decoupled from real estate investments.

Noting that the plan has been revised last year, Georgiades noted that perhaps the government will explore some changes that relate to the scheme’s management and promotion rather than its eligibility criteria.