Minister of Finance Constantinos Petrides said on Thursday that the 2021 state budget is increased by 742 million, or 10.6%, compared to the 2020 budget, despite the economic problems caused by the pandemic.

Addressing the House of Representatives’ plenary, the Minister called upon the Parliament to vote in favor of the state budget 2021, saying that this would be to the best interest of the country and the society, especially in the midst of economic problems that the pandemic has caused.

"Without the adoption of the budget, no new support can be given to employees and companies, no social benefits can be given,  and the health system can not function" he said, and warned that otherwise, we would enter uncharted waters and a period of intense instability with incalculable economic consequences.

Noting that the 2021 budget is being submitted under the worst economic circumstances since the 1974 Turkish invasion amid a pandemic, uncontrolled migration and other challenges, he said that despite the significant deterioration in economic indicators, the international credit rating agencies have not downgraded the Cypriot economy, which shows that the policies and measures implemented by the government to limit the effects of the pandemic were the right ones.

He said that the government, in this deep and unprecedented crisis, and with significantly reduced revenues due to reduced economic activity, suspension of payments, etc, has kept the Cypriot economy and society standing, paying salaries, pensions, allowances and grants.

In relation to the macroeconomic forecasts on which the 2021 budget was based as well as the three-year fiscal planning, the growth rate for 2020 is expected to shrink by -5.5% compared to -7.0% which was the initial forecast in April 2020.

As from 2021, he said, the economy is expected to enter a recovery path with growth being close to 4.5%, while the unemployment rate for 2020 is estimated to have an upward trend compared to 7.1% in 2019, but a rising trend will be avoided due to measures to support employees and businesses, while for the coming years, unemployment is expected to fall to 7% in 2021 and 6% in 2022.

He noted that the forecasts are significantly better than the ones of most European countries, and incomparably better than other European tourist countries.

Regarding fiscal balance, he said there will be a deficit and will amount to 4.5% of GDP for 2020 compared to a surplus of 1.7% in 2019, while marginal deficits are expected in the coming years, amounting to 0.7 % of GDP in 2021 and 0.6% in 2022.

In relation to public debt, he said that it is expected to increase to 115% of GDP in 2020 from 95.5% in 2019 and then return to a downward trend from 2021 where it is projected to fall to 111% in 2021, due to the expected economic recovery and improved fiscal indicators.

The Minister said that the 2021 budget was prepared with five main objectives. The first, he said, is the continuation of emergency measures to support employees and businesses affected by the pandemic.

He said that more supporting measures will be announced in the coming days.

Petrides said that the second strategic goal is to strengthen the welfare state. He said that the 2021 budget is the largest budget in the history of the Republic in the field of Health, which now represents 9.63% (€ 1,017 million) of the total budget, a percentage many times more than it was a few years ago. Compared to last year, there is an increase in health sector expenditures by €55 million. He also said that the budget strengthens social justice with an increase by 117 million of the budget of the Ministry of Labor, Welfare and Social Insurance.

The third strategic goal is the defence of the country, he said, explaining that taking into account the geopolitical instability in the region and the continuous and growing challenges that the country faces, the 2021 budget includes significant increases in spending on the defence sector. He said that the budget is increased by 71 million euro or by about 20%.

The fourth strategic goal is the rapid recovery after the end of the pandemic, and the sustainable and dynamic growth with 634 million euro for the implementation of the National Recovery and Sustainability Plan based on European guidelines.

Petrides noted that the budget strengthens entrepreneurship with a budget of 400 million for the period 2021-2027, which is almost three times more than the previous programming period, with the first programs being announced in 2021.

It also aims at green growth with more than 50 development projects related to the circular economy, waste and water management, biodiversity conservation etc.  The Minister also said that the budget includes the largest budget ever allocated to e-government and digital transformation, with projects exceeding € 140m under a specific action plan, as well as programs to promote research and innovation.

The budget, he added, includes large development infrastructure projects of 1 billion euro and noted that there is an increase in the development expenditure of the Ministry of Transport, compared to the previous period by 82% for the next three years for projects such as the Cyprus Museum, the Paphos-Polis Chrysochous road, the Astromeritis - Evrychou, Nicosia - Paleochori highway, and the junction at the entrance of Nicosia.

The fifth strategic goal, he said, is the reform of both the budget and government policy, and it is something that should be a national goal.

Referring to the economic measures taken during the pandemic, he said that the health system was strengthened with an additional 100 million euro, they supported the incomes of more than 200,000 employees, vulnerable groups of the population, parents and students, thousands of companies, special sectors of the economy, the unemployed, etc.

"One would expect that under the current circumstances, and due to the fiscal pressures brought by the pandemic, the 2021 budget would be more restrictive than the budget of 2020. On the contrary, we present to you for 2021 a budget increased by  742 million, or 10.6%, compared to the 2020 budget, "he said.

He added that the economy is facing the challenge of the pandemic, the challenge of reducing the high debt that must return to a declining course, the challenge of the viability of the National Health System, but also the challenge of increased migration flows.

Finally, he referred to the Non Performing Loans, saying that they are a challenge for the banking sector, and noted that despite the significant progress that has been achieved, with a total reduction by 23 billion euro, or by 75.5%, the effort must continue.