RATINGS agency Standard and Poor’s observations about the economy, despite downgrading it, contain positive and promising assessments the government said yesterday.
On Tuesday, S&P downgraded the economy to ‘A with a negative outlook’ citing the banking sector’s high exposure to debt-riddled Greece.
The agency said its action reflected “increased vulnerabilities from embedded credit risk of the Cypriot financial system’s external assets and domestic loan book, and the impact these could ultimately have on public finances”.
The government defended the banking sector, adding that S&P’s comments contained “positive and positive assessments for the Cypriot economy.”
They “confirm the government’s estimation of a 6.0 per cent public deficit for 2010. The international agency notes that the 2011 budget is a positive step in the effort towards fiscal reform,” deputy government spokesman Christos Christofides said.
He said S&P considers the target of containing the public deficit to 4.5 per cent feasible through putting in place some mild measures.
The finance ministry wants to introduce pay cuts in the civil service and increase corporation tax on banks to 15 per cent from the present level of 10 to cut the fiscal shortfall to the EU requirement of 4.5 per cent next year.
Ruling AKEL spokesman Stavros Evagorou said the Cypriot banking sector remains robust despite the downgrade.
“It is not an accident that Cypriot banks successfully passed the crash tests conducted by the European Central Bank,” Evagorou told reporters.
The AKEL spokesman said the rating should not be used to create a climate of panic and scaremongering but “it is a chance to have cooperation and consensus on a national level with the aim of taking measures for fiscal reform and bolstering the state’s revenue.”
Evagorou also seized the chance to take a shot at other parties, including government coalition partners DIKO, for rejecting a raft of measures submitted earlier this year.
“If those measures had been approved, the situation today would have been completely different and clearly better,” Evagorou said.
DIKO vice chairman Nicolas Papadopoulos blamed the government for the negative rating.
He said everyone has been hearing about measures for the past two years but no one has seen any.
“We, ourselves, caused the credibility problem of the Cypriot economy and the Cypriot state and it for this reason more in-depth scrutiny started that resulted in disputing our banking system,” Papadopoulos said.
He said the main responsibility for drafting a comprehensive plan for fiscal reform lies with the government, the president, and the finance ministry.
“The government has primary responsibility, not only to prepare these measures, but to pass them from parliament. So far the government has not convinced (us) there is a plan and this is the basic problem,” he said.
Employers and industrialists (OEV) yesterday accused the government and political parties of lacking the courage to confront the civil servants union (PASYDY) in a bid to curb the state payroll, one of the main burdens of the economy.
OEV chief Michalis Pilikos urged the government and parties to assume their responsibility and go head-on with the establishment or else more downgrades will follow.
Pilikos said the state payroll and pension system “constitutes one of the biggest burdens on the Cypriot economy.”
“Neither the government nor the political parties are prepared or have the political courage to confront PASYDY or to make substantive changes to the state payroll and the other benefits of state workers,” Pilikos said.
He said OEV will next month embark on a campaign to inform the people about public finances with special emphasis on the state payroll and pensions.