In either an oversight or deliberate decision, the 2024 Budget, in alignment with the Mid-Term Fiscal Framework (2023-2025), has either neglected or allocated fewer funds than expected in eight key sectors. This concern is highlighted in the Fiscal Council's report.

The report specifically points to underfunding in sectors like the Social Insurance Fund (TIF), the Health Insurance System (HIS), and pharmaceutical purchases. Additionally, allocations for the Fit-for-55 environmental initiative, digital and green transition, defense, and expenditures for the Presidency of Cyprus in the EU are similarly lacking. The issue of Emissions Trading Rights (ETR) purchases, also under discussion today in the Parliamentary Control Committee, is another notable omission.

The Fiscal Council's report emphasizes that the budget projections for specific expenditures do not align with their historical trajectory. It is expected that some expenditure categories will increase more than the current budget and the 2024-2026 Mid-Term Fiscal Program (MTFP) have forecasted. Specifically, the Fiscal Council anticipates corrections through Supplementary Budgets, a practice which should be limited to special, unforeseeable, and exceptional cases.

Beyond these categories, the report adds that plans for additional expenditures, such as those arising from Cyprus' assumption of the EU Council Presidency at the end of the MTFP, are missing. Moreover, unaccounted needs of the Republic, including obligations to comply with Fit-for-55 commitments, are expected to significantly inflate future costs.

The report also mentions limited progress in digital transition, including the state machinery, green transition, and defense, expecting a sharp and financially significant increase in expenditures within the MTFP horizon.

Despite these potential expenses, deficit scenarios remain marginally positive, even in the worst-case scenario, according to the Fiscal Council. A greater risk identified is the full normalization of inflation, which could compress nominal GDP and state revenues, thereby impacting fiscal metrics.

The Fiscal Council notes that achieving the debt target of 60.1% of GDP by the end of the MTFP is particularly challenging. However, no increase in debt is expected, assuming that the weighted yields of new debt issuance do not exceed the 3.8% threshold.

The Fiscal Council acknowledges the satisfactory debt trajectory but cautions against the aforementioned significant risks. With the increase in inflexible expenses, concerns arise regarding maintaining fiscal flexibility for policy implementation or addressing unforeseen circumstances in the next three years. The Ministry of Finance is advised to maintain the corrective trend recorded in the MTFP and adopt an aggressive policy to contain inflexible expenditures in the next budget cycle (2025 Budget and 2025-2027 MTFP).