The umbrella legislation, known as the Fiscal Responsibility and Budget System Law (FRBSL), was meant to be adopted by the end of last year, according to the memorandum (MoU) agreed with the troika of international lenders. The FRBSL will be applicable to the entire government sector and will include, among others, macro-fiscal policy-making, and budget formulation, approval and execution. Cyprus must also remove the risk of overspending by making sure all spending commitments are timely and properly recorded and reported in the accounting system and improve the monitoring of government guarantees through a risk assessment analysis.

In a report accompanying the proposed bill, the government said the current system did not meet the basic principles of fiscal discipline, setting priorities, and effective allocation and use of resources between sectors through mid-term planning. Ministries had limited control over the cost of their payroll and do not show any interest in managing their employees’ salaries, the report said. There is no forecast for fiscal risks and the spending ceilings set by ministries are indicative and not binding. This results in the ministries demanding additional funds thus violating the ceilings. The bill provides for binding spending ceilings for each ministry that will be approved by the cabinet. Setting a spending limit bolsters fiscal discipline and achieves better planning, the report said. “Ministries are granted more flexibility in managing theirbudgets without prior approval from the finance minister,” it added.

The umbrella law also defines the best practices when it comes to assessing and selecting development projects, and managing the revenues from natural resources in a transparent manner. It provides for sanctions for overspending or other violations. For example, any official convicted of assuming any commitments without a reasonable excuse faces a fine of up to €20,000 or up to a year in jail or both penalties. The same applies to anyone who authorises any spending that exceeds the approved amount or provides false information.

Source: Cyprus Mail