(Updates with more comment in fifth paragraph)
By Stelios Orphanides
The cabinet approved on Wednesday the government budget for next year which provides for more than €7.5bn in spending and in excess of €7.7bn in revenue which take into account accelerated growth rates, the finance ministry said.
“A 3.4 per cent increase in both revenue and expenditure is registered with an expected fiscal surplus of 1 per cent of gross domestic product,” the Ministry of Finance said in the proposal submitted to the council of ministers. The ministry revised its fiscal forecast for this year from initially a surplus of 0.2 per cent of economic output to a surplus of 0.9 per cent against a 0.4 per cent surplus last year.
The economy is expected to grow 3.6 per cent this year, against a previous forecast of 2.9 per cent, and the growth rate is expected to slow down to 3 per cent next year and to 2.7 per cent in 2019 to 2020, the ministry said. Next year, the inflation rate is expected to slowdown to 1 per cent from 1.11 per cent this year and accelerate to 1.5 per cent and 2 per cent in 2019 and 2020 respectively.
As a result of growth, inflation and budge results, the government debt is expected to drop to 103 per cent at the end of 2017 from 107.8 per cent last year,
The unemployment rate is expected to drop to 9.5 per cent next year from 11 per cent this year and drop further to 8 per cent in 2019 before full employment conditions with a jobless rate of 6.5 per cent return in 2020, the ministry said.
The finance ministry said that while the economy, which returned to growth in 2015 after a prolonged period of recession, is in quite a better shape, domestic and external risks may affect growth.
“The key is the continuation and completion of structural reforms, the further consolidation of the financial system, especially via the reduction of non-performing loans, and the encouragement of high added value investment which will further help reduce unemployment,” the ministry said.
The budget includes funds to reform the justice system to address commercial and financial disputes, amid long delays in the completion of cases giving Cyprus a poor rating in contract enforcement in international comparisons discouraging investment in turn, the ministry said. “The relevant draft bill will be submitted to the cabinet in October”.
In addition, the government plans to promote electronic justice which aims at further modernising the operations of all courts with €13m and the launch of a “Bureau of Judicial Training and Reform,” the ministry said.
The government also plans to step up its effort to promote electronic governance with the purchase of an electronic signature and electronic authentication system from Estonia, a global pioneer in e-governance, software for the Tax Department and its human resource management and a further upgrade of the government portal ARIADNE, it added.
The 2018 budget also includes funds aiming at encouraging film productions, also to be submitted to the cabinet next month, an overhaul of the Stamp Duty Law aiming at reducing bureaucratic procedures for companies, more support to academic institutions for research infrastructure, road construction projects, including a peripheric highway around Nicosia and an upgrade of the road linking Limassol to the Troodos village of Saittas and Paphos to Polis, the ministry said. The budget also includes funds for the construction of a new archaeological museum, a new parliament, a new football stadium in Limassol and energy infrastructure at the Vasilikos area, the establishment of a provident fund for newcomers at the civil service and a modernisation of the law on charities.