THE GOVERNMENT will take whatever actions necessary to ensure its budget deficit stays within a target of 2.5 to 2.7 per cent of gross domestic product this year, the newly appointed finance minister said yesterday.
“My predecessor gave a commitment that the deficit will be in the region of 2.5 to 2.7 percent in 2012, and that will be strictly adhered to, irrespective of developments,” Finance Minister Vassos Shiarly told lawmakers. “Consequently … any possible deviation should be covered with additional measures, which must be taken in time.”
It was the former banker’s first public appearance in Cyprus after taking over on March 23.
Shiarly did not elaborate on measures which could be adopted if the deficit veers off target.
He said authorities needed to be in a position to immediately react to correct imbalances.
Without ruling out any specific kind of measure, the minister said taxes were not the best way to tackle the problems faced by the economy.
The deficit, he said, would fall to 0.5 percent of GDP in 2013.
Legislation to be in line with the EU’s ‘fiscal compact’ on zero deficits will be tabled to parliament in a few weeks.
“We anticipate that it will be submitted for approval in coming weeks. We will possibly be one of the first countries of the EU to have such a law,” Shiarly said.
Draft legislation submitted by an MP already calls for authorities to cut, by law, the deficit to zero in 2013, but Shiarly’s references to a 0.5 per cent shortfall next year implies the government wants to wait.
Fiscal slippage and heavy exposure of Cyprus’ banking sector to Greece have seen the island’s credit ratings cut to junk by two of the world’s three ratings agencies.
Cyprus, the euro zone’s third-smallest country, has been shut out of international debt markets for almost a year.
Cyprus’ deficit hit 6.0 per cent in 2011.
Two austerity packages adopted last September and December saw cuts in civil service salaries, a freeze in new recruitments, a staggered increase in income tax for private sector workers and a two point increase in sales tax to 17 per cent.
The island teetered on the verge of a bailout last year after a devastating munitions blast destroyed its largest power station, crimping output.
Rates on its traded bonds have been prohibitively high since May 2011, and the quoted yield on its 10 year bond is around 13 per cent.
The island took a €2.5 billion bilateral loan from Russia in late 2011. “Liquidity (in 2012) has been secured with the Russian loan,” the minister said.
Shiarly reiterated that one of his ministry’s priorities was the recapitalisation of the island’s banks to meet tougher regulatory requirements by the end of June.
“If you abandon the banking system it means you are abandoning your economy,” Shiarly said.
The minister said he will be meeting the bank association today.
