THERE ARE no sacred cows when it comes to saving the economy, said the head of the Cyprus Chamber of Commerce and Industry (KEVE) yesterday, who called on the government to put a cap on the state payroll.
Speaking after a meeting with Central Bank Governor Athanasios Orphanides, KEVE head Manthos Mavromatis said measures had to be taken to tackle the state payroll and state pensions if Cyprus was to convince international rating agencies that “the public deficit and public finances are under control”.
Mavromatis said the two men spoke about the deterioration of public finances and the impact on the economy. “KEVE is not dogmatic, it looks at the issue as a whole and the executive power is obliged to bring a package of measures which includes all,” he said.
“There are no sacred cows in the Cypriot economy and the state payroll must be contained,” he said adding that a reduction in the number of civil servants was a step in the right direction but not satisfactory on its own.
“Real increases in the conditions of economic deterioration that Cyprus is going through today are not justified.
“These real increases, whether in the form of wage increases or incremental increases within a wage grade scale or promotions or restructuring, should be suspended for a two-year period… to achieve the deficit target of 4.5 per cent for 2011.”
Mavromatis warned that a possible downgrade of the credit rating of the Cyprus economy by international rating agencies would have “hugely negative consequences” on the economy, both short and long-term.
“In the short-term, it means higher interest rates for all, higher interest rates for the public sector to pay the public debt, higher interest rates for banks that may want to raise funds in the interbank market, higher interest rates for the private sector and their financing needs.
“So, the issue is for the Cypriot economy to take measures at any cost which will lead to avoiding a reduction of its rating in the coming months,” he said.
The KEVE head noted that the government itself had conceded that the 2011 budget was not enough to reduce the public deficit to 4.5 per cent.
“Whatever money needed to achieve this, whether €150m or more, they must make savings, and the first step that must be taken is to reduce costs,” he said.
“The reduction of operating costs is a step in the right direction and we welcome it. Keeping the increase in expenditure to one per cent for the year is an ambitious target and we want it to succeed, but all this is not enough.
“Other measures need to be taken. We can’t ignore the important measures which primarily concern the state payroll and secondly, state pensions,” he added.
A report submitted to the House Watchdog Committee earlier this month by the state’s general auditor showed that state expenditure on state employees’ wages had increased by some €23m between January and July 2010 compared to the previous year. The new payroll had reached €982m despite a freeze in wage rises.
While a moratorium has been placed on wage rises for 2010 and 2011, the increase was recorded due to the cost of living allowance and incremental salary increases within wage grade scales.
In the first seven months of 2010 the state also paid some €275 million in civil servants’ pensions and bonuses compared to around €208 million in 2009.
