Orphanides: Cyprus must cut back on public spending

CYPRUS must rein in public spending and re-direct it to development projects to help lift its economy out of its worst recession in three decades, central bank Governor Athanasios Orphanides said yesterday.

Orphanides, who is also a member of the Governing Council of the European Central Bank, said problems in the economy needed to be tackled comprehensively, and with backing from across the island’s political and economic spectrum.

“Cutting back on non-productive public spending is necessary, because only then can resources be freed up and directed to economic growth and curbing unemployment,” said Orphanides, who was an introductory speaker at a book presentation in Nicosia.

Cyprus slipped into recession in 2009 following a slump in the property market and tourism, which accounts for about 11 per cent of its gross domestic product. The island’s unemployment rate is now 6.8 per cent.

Public finances have also deteriorated markedly, with the European Commission last month deciding to take disciplinary action against Cyprus for exceeding public deficit limits above the EU ceiling of 3 per cent of GDP.

The island, which accounts for about 0.2 per cent of the euro zone economy, had a budget gap of 6.1 per cent in 2009, which is expected to rise to 7.1 per cent this year.

The government says it has cut back on non-essential spending, but has yet to push through wide-ranging reforms to correct fiscal imbalances. Orphanides has repeatedly expressed concern at the high rate of growth in public spending, which was forecast to grow to a high of 47.6 per cent of GDP this year.

Orphanides said any delays in attempts to shore up the economy would create problems over time.

“History is not kind to those lacking in courage. Postponements and procrastinating only serves to accumulate problems and deprives the public of a better future,” Orphanides said.  (R)

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