Cyprus

II - Changes to the Budgetary Process

Budgetary process        
II.1
Describe the main characteristics of the budgetary process (cycle, actors, instruments, etc.) in Cyprus.

Until 2012 Cyprus was among a handful of Member States that had neither fiscal rules nor a binding medium-term budgetary framework (MTBF), while it also lacked a fiscal council (see also questions 31 and 34).[1]  Although Cyprus announced in 2007 that it would introduce a three-year medium-term budgetary framework (MTBF) with the aim to better control public sector employment growth and contain other current expenditures,[2] this budgetary framework was eventually introduced only in 2012.

Details on the budget procedure are provided in Art. 81, 167 and 168 of the Constitution of the Republic of Cyprus. The Budget of the Republic of Cyprus undergoes the same procedure as described under Question 2 for the adoption of ordinary laws; that is the Parliamentary Committee of Finance submits for discussion the Budget Draft Bill, which is then discussed in the Parliament, sitting in plenary session, and approved (or rejected) by simple majority as an ordinary law. The Budget Law of Cyprus for 2013, Law 59 (II) of 2012 was published in the Official Gazette on 31 December 2012.[3] Following this publication the Minister of Finance issues a payment order which he addresses to the General Accountant of the State (Γενική Λογίστρια) and with which he authorizes the carrying out of the payments, as provided in the Budget Law.

The method and the form of drafting the budget is laid down by the Minister of Finance, in accordance with Art. 167 of the Constitution of Cyprus which provides that:

1. The Minister of Finance shall, upon receipt of the estimates of each Ministry and of each independent Office of the Republic, cause to be prepared in respect of every financial year a comprehensive Budget of the Republic for that year which, when approved by the Council of Ministers, shall be laid before the House of Representatives.

2. The estimates of expenditure in the Budget shall show separately

(a) the total sums required to meet expenditure charged on the Consolidated Fund; and (b) the sums respectively required to meet other expenditure.

3. The said Budget shall also show, so far as is practicable, the assets and liabilities of the Republic at the end of the last completed financial year, the manner in which those assets are invested or held and particulars in respect of outstanding liabilities.

4. The expenditure to be met from the Consolidated Fund but not charged thereon shall be submitted to the House of Representatives for adoption and if adopted shall be included in the Budget in respect of that financial year.

5. If in respect of any financial year it is found that the amount adopted by the House of Representatives for any purpose is insufficient or that a need has arisen for expenditure for a purpose for which no amount has been adopted a supplementary budget showing  the sums required shall be laid before the House of Representatives for adoption and if adopted by the House of Representatives shall be included in the Budget in respect of that financial year.

6. The House of Representatives may approve or refuse its approval to any expenditure contained in a supplementary Budget but may not vote an increased amount or an alteration in its destination. [4]

Eventually the Budget for every year is debated during the Parliament’s plenary session and approved by simple majority as an ordinary Law.

Under Article 81 of the Constitution, the budget then has to be brought before in the House of Representatives at least three months before the commencement of the financial year, i.e., by September 30 of each year, and it is to be voted upon by the House not later than December 31 of each year. The budget circular outlines the various parameters for the preparation of the budget and provides guidelines to all ministries. A separate, parallel circular is issued by the Planning Bureau for the development expenditure component of the budget, within the ambit of a five year strategic development plan drawn up by the Planning Bureau. The budget is presented on a line item basis. The budget and accounts classification are consistent and mainly based on an administrative classification, whereas a classification a classification by economic category of expenditures is also presented.[5]

The Budget preparation process and the relevant legal basis is provided in the following table, as provided by the Stability Programme of the Republic of Cyprus 2012-2015,[6] prepared by the Ministry of Finance in April 2012. No change in the budgetary process has been observed since then.

 

 

The drafting of the Budget is based on the fiscal targets –as these arise from the results and the estimations of previous years – as they are provided in the Governance programme and strategy of the government, the Stability programme of the Republic of Cyprus for 2008-2012, the National Reform Programme pursuant to the Lisbon strategy, as well as the guidelines and fiscal frameworks that were defined by the Encyclicals of the Minister of Finance according to the MTO and the MTBF.

General change    
II.2
How has the budgetary process changed since the beginning of the financial/Eurozone crisis?

The main change in the budgetary process since the beginning of the Eurozone crisis relates to the implementation of a binding Medium-Term Budgetary Framework (MTBF), which finally institutionalizes expenditure rules. As such greater emphasis is placed on multi-annual planning, via the medium term budgetary objective as laid out in the Stability Programme as an ‘anchor’ in budgetary policy.

The Ministerial Encyclical of the Ministry of Finance (for instance, Number 1478 of 29 May 2013) on the Strategical Framework of Fiscal Policy 2014 – 2016 – Budget 2014[7] provides for a separate chapter/section where the innovations in the drafting of the budget are summarized.  The main changes can be found in the substance of the budget itself and much less in the process.

One first change concerns the preparation of the Strategical Framework of Fiscal Policy (SFFP)[8] which is from 2013 drafted by taking into account not only the government’s commitments and programme but also the commitments undertaken in the framework of the MoU. Consequently, since the signature of the MoU the budget includes and incorporates all the measures prescribed in the MoU in relation to fiscal and structural measures.

As part of the budgetary  reform  process  it is further required  that  line  ministries  and  other government spending agencies will enter into a process of progressively redesigning their  annual  budgets,  reflecting  a  new  approach  based  on  Programme  and  Performance Budgeting (PPB).[9] The new PPB approach will become the official (and only) budget method from the financial year 2015 onwards.

Institutional change   
II.3
What institutional changes are brought about by the changes in the budgetary process, e.g. relating to competences of parliament, government, the judiciary and independent advisory bodies?

No institutional changes have taken place as a result of the changes in the budgetary process. The establishment of the Fiscal Council, as prescribed by Law 194 (I) of 2012 is foreseen to be established at the beginning of 2015.

What is more, it is anticipated by the end of December 2013 that a new Law on the ‘fiscal responsibility and budget systems’ will be submitted for discussion to the Parliament in order to address any remaining inconsistencies between the MTBF law and existing legislation, include supplementary secondary legislation and address other existing legal shortcomings.[10] The new law will further provide an enabling framework for a medium-term Public Financial Management (PFM) reform program.[11]

The Fiscal Responsibility and Budget Systems Law is expected to contribute to improving Cyprus’ fiscal position by setting out a broad framework of fiscal rules, fiscal discipline and fiscal transparency. “It will set the budget process in a medium-term framework consistent with a strategic approach to planning both domestic as well as EU and other externally financed resources. And it will allow line ministries to play a greatly enhanced role in planning and executing the budget in the policy areas for which they are responsible.”[12]

Change of time-line      
II.4
How has the time-line of the budgetary cycle changed as a result of the implementation of Euro-crisis law?

No major changes have been observed in the time-line of the budgetary cycle (see also questions V.8 and IX.1-IX.3).

Miscellaneous
II.5
What other information is relevant with regard to Cyprus and changes to the budgetary process?

Not applicable

[1] Fiscal Frameworks across Member States. Commission Services Country Fiches from the 2011 EPC Peer Review’, Occasional papers 91, February 2012, p. 9.

[2] http://ec.europa.eu/economy_finance/db_indicators/fiscal_governance/documents/1-a5a_analysis_en.pdf , p. 9

[3] Official Gazette of the Republic of Cyprus, Issue 4229 (31 December 2012).

[4] Translation from: http://www.presidency.gov.cy/presidency/presidency.nsf/all/1003AEDD83EED9C7C225756F0023C6AD/$file/CY_Constitution.pdf

[5] Stability Programme of the Republic of Cyprus 2012-2015, Ministry of Finance, April 2012, p. 65

[6] Stability Programme of the Republic of Cyprus 2012-2015, Ministry of Finance, April 2012, p. 65 – 66

 

[7] http://www.mof.gov.cy/mof/mof.nsf/All/967B393837E6A4FBC2257BFF0037546A/$file/%CE%95%CE%93%CE%9A%CE%A5%CE%9A%CE%9B%CE%99%CE%9F%CE%A3%20%CE%A0%CE%A1%CE%9F%CE%AB%CE%A0%CE%9F%CE%9B%CE%9F%CE%93%CE%99%CE%A3%CE%9C%CE%9F%CE%A5%202014%20-%202016.pdf

[8] The Medium Term Objective Framework is renamed into the ‘Strategic Framework of Fiscal Policy’.

[9] Stability Programme of the Republic of Cyprus 2012-2015, Ministry of Finance, April 2012, p. 41.

[10] IMF Country Report No. 13/125 (May 2013), Cyprus: Request for Arrangement under the Extended Fund Facility, p. 61

[11] Ibid.

[12] G. Panteli, A New PFM Reform Strategy for Cyprus, http://www.mof.gov.cy/mof/mof.nsf/All/8D5A50938A96AA6BC2257BA20035E774/$file/%CE%91%CF%81%CE%B8%CF%81%CE%BF%20%CE%93.pdf