Cyprus’ delays in tackling long-overdue reforms has cast doubts on the outlook of the island’s economy from international markets, the influential head of its central bank said yesterday.
Athanasios Orphanides, who is also a Governing Council member of the European Central Bank, said swift action was needed by authorities to improve public finances, particularly in the wake of ratings downgrades by international credit rating agencies.
“In my view international markets have doubts about our republic right now, to a large extent because we have not taken decisions which we ourselves had said we would take,” Orphanides, a member of the ECB Governing Council, told reporters in parliament.
Standard and Poor’s cut Cyprus one notch to A- last week, citing its concern about the risk to the island’s banks from a potential debt restructuring in Greece.
Though government officials tend to focus on the S&P downgrade being the result of Greek exposure, central bank officials perceive it as an effect of a weaker domestic economy, and the potential inability of the Cypriot government coming to the aid of banks, if required.
Cyprus has struggled to contain higher deficits coupled with weaker growth since 2009. Its deficit is projected to fall to around 3.8 per cent of Gross Domestic Product (GDP) this year, from 5.3 per cent in 2010, and its debt will hover around 60 per cent of GDP. Growth is forecast at 1.5 per cent, from 0.9 to 1.0 per cent in 2010.
Orphanides noted that authorities had pledged in December to take structural reforms to substantially improve the country’s finances.
“As soon as possible, our government must place fiscal consolidation measures before parliament, and parliament must support and approve these measures to avert this bad picture we have created.”
Orphanides has repeatedly said in the past Cyprus needs to cut down on spending, citing its high public payroll, and launch pension reform.
The government says it has started a staggered decrease in the number of civil servants and hopes to get civil servants on board on ways to change their pension calculations. Legislation is pending approval in parliament to cut back on multiple state pensions past and former officials are reaping for holding various posts.
