New blow to economy from credit agency

CREDIT RATINGS agency Standard and Poor’s placed Cyprus on review for possible downgrade saying the A+ sovereign rating could be cut within three to four months if the government failed to act to improve its finances.

Placement of the rating on CreditWatch negative followed a rejection by lawmakers of two tax reform bills, said S&P credit analyst Trevor Cullinan.

He said he expected to resolve the CreditWatch status after parliament reconvenes in September and considers further measures to address growing economic pressures.

“We query whether the government will be able to push through fiscal consolidation measures that are sufficient to address the significant deterioration in public finances,” Standard and Poor’s said in a news release.

Cyprus Finance Minister Charilaos Stavrakis declined any immediate comment.

Cyprus, which represents 0.2 per cent of the euro zone economy, saw a revenue drain from a downturn in tourism and real estate in 2009 which pushed its public deficit to 6.1 per cent of GDP.

Without corrective action, the shortfall could reach 7.1 per cent in 2010, according to the European Commission.

The island entered the EU excessive deficit procedure earlier this year.

Cyprus’s debt as a per cent of GDP had increased by about 25 per cent of GDP over 2008-2010 because of fiscal and financial sector pressures, the ratings agency said.

S&P said Cyprus had a proven track record in fiscal consolidation, but that strength was moderated by a recent deterioration in public finances, large external imbalances, and significant contingent liabilities posed by the financial sector.

The centre-left government on July 9 failed to get parliamentary approval to increase corporate tax to 11 per cent from its present 10 per cent, and change tax laws on real estate.

Parliament had in a majority vote criticised the move as stifling the private sector, while saying the government was doing little to control expenditure.

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.