Interest rates unchanged as governor again sounds deficit alarm

THE CENTRAL Bank’s monetary policy committee left benchmark interest rates unchanged at 4.5 per cent for advances and 2.5 per cent for deposits at its monthly review yesterday, but Governor Christodoulos Christodoulou again warned that Cyprus ran the risk of exceeding its 2003 fiscal deficit forecast of 5.4 per cent.

“It looks like there is a deviation from the (government) forecasts in the pre-accession economic programme,” Christodoulou told reporters for the second time in a week.

He said, however, that a clearer picture of the situation would be apparent in December.
“Our macroeconomic indicators mirror an economy with solid foundations but the state of public finances must improve,” he said.

The island, which joins the EU in May 2004, has laid out a fiscal consolidation programme to rein in deficits in the hope of joining the euro zone by January 2007.

The 5.4 per cent forecast is included in a pre-accession economic strategy paper Nicosia tabled to Brussels in September.

It forecasts the fiscal shortfall at 3.7 per cent in 2004, 2.8 in 2005 and 2.2 in 2006.
The document was revised by the present left-wing administration which took office in February. The government had then criticised its predecessors for giving the European Union wildly inaccurate figures of fiscal deficit remaining firmly below 4.0 per cent for 2003, and below 3.0 per cent in 2004.

Asked if a third review of the strategy document may be required, Christodoulou said “I hope not.”
Authorities have ruled out new taxes to plug the gap, but say they plan to pursue tax dodgers with renewed vigour, outsource more public projects and offer tax amnesty to people who come clean on tax stashed in secret bank accounts abroad. (R)

The Cyprus Mail is the only English-language daily newspaper published in Cyprus. It was established in 1945 and today, with its popular and widely-read website, the Cyprus Mail is among the most trusted news sites in Cyprus. The newspaper is not affiliated with any political parties and has always striven to maintain its independence. Over the past 70-plus years, the Cyprus Mail, with a small dedicated team, has covered momentous events in Cyprus’ modern history, chronicling the last gasps of British colonial rule, Cyprus’ truncated independence, the coup and Turkish invasion, and the decades of negotiations to stitch the divided island back together, plus a myriad of scandals, murders, and human interests stories that capture the island and its -people. Observers describe it as politically conservative.