Cyprus Fiscal Council issues yellow card

The Cyprus Fiscal Council has recommended particular caution in public finances to the Cypriot government, due to increased risks which may persist over time, expressing the view that support measures should be focused on small and medium-sized enterprises and vulnerable groups of the population rather than across the board.

“The scope for fiscal policy is not unlimited and horizontal measures are as counterproductive as ineffective and wasteful, despite their popularity,” the council said in its interim report published on Thursday.

The council assessed that in the aftermath of Russia’s invasion of Ukraine, “inflationary and employment pressures will continue, while at the same time increases in some of the inequality indicators should be expected.”

According to the Cyprus Fiscal Council, the current economic climate does not imply a high fiscal risk and the control exercised by the Treasury does not raise any cause for concern at this stage, while noting that “under current circumstances, fiscal policy is driving growth and inflation in the same direction, with relief and fiscal support measures being inflationary and deflationary measures being recessionary.”