Extract from the validation letter of macroeconomic forecasts, dated 25/9/2014:
Assessment
Due to the fact that the Fiscal Council was recently established at the beginning of June and
finalized its staffing procedure early September (after the beginning of the European Semester),
and because Cyprus has agreed to enter into an Economic Adjustment Program (Memorandum
of Understanding) with its partners (Troika), it was decided that the assessment of the Fiscal
Council will be based on the comparison of macro-economic forecasts that were used in the
preparation of the State Budget 2015, with the corresponding estimates of other institutions or
bodies. Additionally, the latest available statistical data and surveys were considered in order to
establish whether the general economic outlook supports these estimates.
The following information was taken into account, in order to justify the estimates:
1.
The macroeconomic aggregate estimates for 2015 as regards the Gross Domestic
Product (GDP), unemployment figures, inflation rate, Fiscal Deficit and Gross Debt of the
General Government sector and the current account balance. The main sources of information
were the European Bank for Reconstruction and Development (EBRD), the Working Groups of
the Ministry of Finance, the Central Bank of Cyprus and the Troika. Moreover, relevant
information was obtained from the Economic Outlook, July 2014 release, which is issued by the
Economic Research Centre, University of Cyprus.
2.
The latest statistical information concerning key sectors of the economy (e.g. tourism,
car registrations, construction etc).
3.
Economic indicators prepared by the Economic Research Centre, University of Cyprus.
In comparison with the initial predictions for 2014, the economic growth rate for 2014
remained at a higher level, due to better performance of private consumption expenditure than
initially estimated, thus having a positive impact on public finance aggregates. A reservation is
expressed whether this phenomenon will be maintained in the upcoming years.
In relation to the initial estimates the Economic Adjustment Program (Table 1) and despite the
improved economic performance, the economy is not expected recover in the short term
horizon.
Table 1: MoU forecasts for GDP growth rates at constant prices
Reference
Year
2013
MoU April
2013
-8,7%
Projections after
the 5th Review
Mission of Troika
-5,4%
2014
-3,9%
-4,2%
2015
1,1%
0,4%
2016
1,9%
1,6%
The better than expected economic performance in 2013 and 2014, as exhibited on Table 1,
compared to the initial projections, are also largely reflected in the primary fiscal balance. The
figures are presented below on Table 2.
Table 2: MoU forecasts for the primary fiscal balance of the General Government sector
Reference Year
Projections after
the 1st Review
Mission of Troika
(May 2013)
Projections after
the 5th Review
Mission of Troika
(July 2014)
2013
-4,20%
-2,00%
2014
-4,25%
-1,30%
2015
-2,10%
-1,60%
2016
1,20%
1,20%
Budget 2015: Macroeconomic Forecasts -Tables
Macroeconomic Forecasts
Percentage %
State
Budget
2015
Troika projections after 5th
review, Working groups of
Central Bank, MoF and IMF
From
Economic outlook July EBRD
2014, Economic
Research Centre UCY
To
2014
Growth rate (% GDP)
-4,8
-4,2
-2,6
Unemployment (%)
19,8
14,8
17,6
1,0
0,0
0,0
Government balance (% GDP)
-7,1
-4,7
-2,5
Primary balance (% of GDP)
-3,1
-1,3
0,8
HICP inflation (%)
-2,7 -3,5
N/A Ν/Α
Public debt (% GDP)
124,4
117,4
120,7
0,4
0,4
0,5
17,0
14,8
16,1
0,9
0,7
0,9
Government balance (% GDP)
-5,2
-5,2
-1,7
Primary balance (% of GDP)
-1,6
-1,0
1,9
126,1
123,9
126,1
1,6
1,5
1,6
15,8
14,8
15,8
1,3
1,3
1,3
-2,2
1,2
-1,3
1,2
0,9
2,4
122,5
122,5
123,1
2015
Growth rate (% GDP)
Unemployment (%)
HICP inflation (%)
Public debt (% GDP)
-0,7
0.0
N/A Ν/Α
2016
Growth rate (% GDP)
Unemployment (%)
HICP inflation (%)
0.0
N/A
Government balance (% GDP)
Primary balance (% of GDP)
Public debt (% GDP)
Ν/Α