Fiscal Council warns of falling growth if Recovery Plan delayed

A government financial watchdog is concerned over the delays in Cyprus implementing its Recovery and Resilience Plan, warning that further delays will adversely affect economic growth and unemployment.

In a statement, the Fiscal Council said the “issue should be addressed as urgent.”

The Recovery and Resilience plan contains reforms and investments associated with the disbursement of €1.2 bln from the Next Generation EU Fund.

Although the first disbursement of €85 mln was scheduled for February, a prerequisite over granting access to Credit Acquiring Companies and non-performing loan services to guarantors’ financial data was delayed over a dispute between the government and parliament.

The Council warned that further delays in the Recovery plan would “constitute substantive risks for Cyprus’ macroeconomic performance.”

“Continued delay in implementing the Recovery Plan would prompt the Fiscal Council to revise its projections for growth and unemployment adversely.”

It said the fiscal performance would be affected, albeit to a lesser extent.

The Council projects GDP growth will reach 2.1% this year.

Under its mandate, the Council endorses the Finance Ministry’s annual and medium-term macroeconomic projections.

Furthermore, the Council argues that delays in the Restructuring Plan threaten the Finance Ministry’s projection of a 5.1% increase in public revenue with a consequential impact on the primary and fiscal balance.

The Council also recalled that the national reform programme and the Recovery plan are intertwined and underpin economic and public finances projections.

“It is therefore rational that in case of repeated delays in implementing these plans, the projections for 2022 should be revised downwards, reflecting the less desired results, mainly in growth and unemployment and to the public finances to a lesser degree.”