FINANCE Minister Charilaos Stavrakis yesterday did not rule out that Cyprus could hit a zero per cent GDP growth by summer but he hoped the year would average out at around 2.0 per cent.
“At the moment we are still seeing some momentum [in GDP growth], which is largely a spill-over from the last quarter of 2008,” Stavrakis said at a business lunch hosted by PeopleAchieve.
“This may continue, but on the other hand we may reach zero per cent growth by mid-point of this year. We are hoping that the ambitious programme of public works just announced will allow us to stay close to 2 per cent growth,” he added.
Referring to the fact that European Commission President Barroso is now talking about the “worst crisis since 1931”, Stavrakis offered an overall assessment.
“How will be Cyprus be affected? We have a very open economy, based on tourism, trade, banking services and selling holiday homes to foreign visitors.”
“Nobody knows what the growth rate will be in Cyprus in 2009 – it depends on world developments.”
Stavrakis said that the country was facing two big challenges.
“Unemployment is a big worry. When growth drops below 3 per cent, unemployment tends to go up, so the government needs to face up to this now. Paphos and free Famagusta are likely to be most affected, as public works in Nicosia will not necessarily help those places,” the Minister said.
Figures released on Tuesday said unemployment in Paphos had doubled over the last two months, up from 2.7 per cent to 5.4 per cent.
“The second challenge is to stimulate the economy without adversely affecting Cyprus’s credit rating with international agencies such as Moody’s and Fitch,” said Stavrakis.
“A lower credit rating would raise borrowing costs centrally, which would then make it more costly for businesses to service their debt.”
Speaking about what resources might be available to cope with the crisis, Stavrakis said that the budget surplus during the second half of 2008 allowed a reduction in the external public debt from 60 per cent to 49 per cent. “That 11 per cent saving in terms of interest payments has freed up €1 billion. Overall we have €2 billion to use for the crisis,” he added.
The short- and medium-term prospects offer little comfort. Stavrakis said that “at some point, the government will have to choose between three scenarios: increase taxes, cut public spending or accept a permanently high external public debt.”
“We are committed to not increase taxes for the next four years, so the only real alternatives are to control public spending and manage public debt better.”
