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‘Unpleasant surprises’ ahead in 2024

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The Fiscal Council, a government financial watchdog, is optimistic over the island’s short-term economic outlook, but expressed concerns about potential risks as ‘unpleasant surprises’ may be in the cards for 2024.

Michalis Persianis, the council’s chair, addressing the parliament during discussion of the entity’s 2024 budget, pointed four points of major concern.

First, the high level of inelastic expenditures, specifically the public sector payroll.

Secondly, the council anticipates an increase in social inequality due to economic uncertainty from geopolitical factors, potentially necessitating higher welfare spending by the state.

Thirdly, the council disagrees with the finance ministry’s projection of a 6.5% increase in state revenues this year.

Lastly, Persianis highlighted that the state’s debt to the Social Insurance Fund has exceeded €10 bln, emphasising the urgency to address this situation promptly to avoid future difficulties.

“It may not require an immediate resolution, but decisions need to be made as quickly as possible. The longer the delay in making decisions, the more painful it will be,” he warned.

Persianis also raised concerns about the growing trend of the public sector outsourcing services to the private sector.

He warned against normalising this practice, stating that it could serve as an excuse for not addressing issues within the public sector.

No culture of cooperation

In his address to MPs, the head of the Fiscal Council spoke of “limited institutional cooperation” with the Finance Ministry.

“There is no culture of cooperation with the Ministry of Finance,” he noted, but acknowledged the cooperation with specific individuals who he called professionals.

He commented that the effort is to secure regular meetings with the Ministry of Finance in order to have an exchange of specific data that will help the council advance its research.

However, Persianis expressed frustration that the council’s observations are sometimes given a political spin by government officials.

“Personally, I will not be satisfied if I leave the council and there is no regular exchange of views,” he said.

The head of the Fiscal Council further emphasised the entity’s commitment to political neutrality and vowed not to remain silent in pointing out perceived risks.

The Fiscal Council’s 2024 balance sheet outlines €508,000 in expenditures, all funded by an annual state grant.

The council’s mission, as stated on its website, is to intervene timely and effectively in public matters to prevent fiscal derailment and the adoption of socially painful measures through prudent fiscal management, including counter-cyclical and macro-prudential policies.

The council consists of three members appointed by the cabinet after consulting with parliament.