Cyprus’ government is preparing reaction scenarios in case the Supreme Court ratifies a ruling that salary and pension cuts in the public sector as part of the 2013 bailout are unconstitutional, Finance Minister Constantinos Petrides said on Sunday.
The country’s Administrative Court ruled a year ago that a freeze on incremental pay rises — a 3 percent contribution to pensions, and a reduction in civil servants’ pay were in violation of article 23 of the constitution regarding the protection of the right to property.
Petrides said in an interview with Cyprus News Agency (CNA) that the impact on public finances was estimated at 844 million euros over a four-year period should the government lose its appeal. This sum amounts to about 10 percent of this year’s budget.
He added the treasury is working on alternatives to meet all contingencies.
Petrides said amending the constitution and re-enacting the law imposing the cuts is an option. But he added that alternatives are examined should this plan proves to be not feasible.
Another potential risk to public finances, along with the public service payroll, cited by international lenders, was the General Health System, or GESY, introduced in May 2019.
Petrides said exorbitant claims by doctors might lead to a derailment of the economy.
“Safeguarding budgetary discipline is very important and it is easy to jeopardize with increased health spending,” he added.
Petrides cited fiscal discipline, risk reduction in the banking sector, in the form of the reduction of non-performing loans, and structural reforms as his main concerns.
He said the priority is public finances and public debt, which is expected to be reduced by five percentage points a year, followed by the reduction of non-performing loans, which he described as a “heavy legacy” of the 2013 economic and financial crisis.
Non-performing loans stood at 9.667 billion euros at the end of August 2019.
“It is not easy, but it is something that should be managed and that is a priority of the Central Bank,” he said.