THE GOVERNMENT is committed to cutting the inflated civil service, a key drain on resources, and introducing pension reform to stave off rating downgrades by rating agencies, Finance Minister Charilaos Stavrakis said yesterday.
Cyprus has already had one ratings downgrade, by Standard and Poor’s last November, while this month another two agencies warned the island’s sovereign debt could face the chop.
The island, which has gone onto international markets three times in the past 18 months for cash, may do so again in May or June.
“We do have chronic problems which we are not sweeping under the carpet, but are trying to solve,” Stavrakis told reporters after a meeting with Moody’s Investors Service.
Moody’s had recently warned the island’s rating could be cut from its present Aa3, citing fiscal slippage and exposure of its banking sector to crisis-hit Greece. Fitch followed with a similar warning, saying its AA- rating could drop a notch because of Greece, and because of overdue reforms in its state pensions scheme.
Cyprus’s state payroll represents about 30 per cent of annual spending. It has 55,000 civil servants among a population of about 800,000 in the island’s government-controlled south.
Its payroll exceeds €2.0 billion, a huge chunk of its spending of around €8 billion. “I was embarrassed showing the figures to analysts,” Stavrakis said.
Stavrakis said the number of civil servants had declined by 1,040 persons last year, and that the state expected it to decline by a further 2,000 by the end of 2012 and generate savings of about €35 million each year. It had also terminated a practice where retired civil servants were allowed to claim unemployment benefit after their departure.
“The government is committed to a dialogue to make the state pension system more viable,” he said. Authorities had appointed an actuary to advise them.
Cyprus has been told by the EU to incrementally cut its deficit to below 3.0 per cent by 2012, from a forecast 5.3 per cent in 2010, and just under 4.0 per cent this year.
It has already increased VAT on food to 5 per cent, introduced an additional tax on tobacco products and plans to tax bank deposits.
Parliamentary elections scheduled for May would not be an excuse to splurge, Stavrakis said. “We have to keep the pressure on for fiscal discipline.we will not stand for any attempt to derail this.”
Stavrakis said he was convinced Cyprus would achieve all its short-term economic goals. He said the ratings agency also seemed to agree.
“We have convinced them, and the two agencies, Moody’s and S&P, already seem to be convinced that we will achieve our short-term economic goals,” said the minister.
He added that the economy was expected to achieve a 1.5 per cent growth rate by the end of 2011, according to the ministry’s forecasts, while the International Monetary Fund believes this could even reach 1.8 per cent, Stavrakis said
According to the minister, growth has been was assisted by the international services’ sector as well as tourism, which is showing good prospects for 2011.
The minister also referred to big investments that were being made in Cyprus, for example one worth €200 million by Vittol and another worth €100 million by Qatari investors.
