FINANCE Minister Michalis Sarris yesterday produced improved deficit and debt reduction forecasts in his 2007 budget as preparations for adoption of the euro by January 2008 entered their final stage.
Cyprus expects its budget deficit to fall to 1.6 per cent of gross domestic product in 2007 from an anticipated shortfall of 2.0 per cent this year. Public debt was expected to fall further to 64 per cent, officials said.
“This will be the third straight year that Cyprus will satisfy all five Maastricht criteria,” said Sarris, referring to EU regulations which must be followed before a state can adopt the euro as its currency.
Cyprus, which saw hopes of earlier euro zone entry frustrated by spiralling deficits, has been in the ERM2 exchange rate mechanism since early 2005.
The Cyprus pound is expected to be permanently locked in against the euro for conversion purposes in “June or July” of next year, according to Sarris.
The Cabinet yesterday approved a state budget putting 2007 spending at £4.06 billion on revenue of £3.31 billion. Ministries should show restraint on submission of budgets to parliament for supplementary funds, a cabinet minister said.
The budget requires approval by Parliament.
Forecast revenue was up an estimated 10.7 per cent on buoyant economic growth seen matching the 2006 estimate at 3.8 to 4.0 per cent. No new taxes were expected, said Sarris.
“It’s ruled out,” Sarris said in response to a question.
The island has typically shied away from imposing direct taxation to cut deficits and Cyprus faces presidential elections in 2008.
Its hole-plugging tactics in the past three years have been to claw back revenue from tax dodgers, and Sarris said economic growth was a key element to the replenishment of public coffers.
“Economic growth rates of 4.0 per cent means that VAT, income tax and capital gains tax revenue also rises, which has helped us reduce deficits and public debt,” said Sarris.
Public debt was expected to fall to 64 per cent of GDP from 67 per cent, while authorities had set a long-term horizon of cutting the figure down to 53.5 per cent by 2009.
Risks underpinning the economy were seen in pressure for submission of supplementary budgets and continued delays in reforming the island’s creaking social security system, a report presented to cabinet said.
Economists have repeatedly said Cyprus needs radical reforms to its social security system to counter the effects of an ageing population and safeguard its pension system tipping into a deficit after 2025. (R)
