Cyprus Economy Starts Recovery

New item – 21.9.09

Cyprus Economic Recovery Begins

Cyprus Finance Minister Charilaos Stavrakis had some long-awaited good news last week, according to the Cyprus Mail. He was able to reveal that the island’s economy is expected to pick up again next year and will grow by 0.5 per cent in 2010, after contracting by the same figure in 2009. Cyprus’ economy technically entered recession in July after recording two successive quarters of negative growth.

The expected growth in 2010 is small but positive - a ray of hope amid the global economic downturn - and Stavrakis allowed himself a little further cautious optimism when he added that, “If the global recovery begins sooner and is more vigorous, then it would be possible to have an even better growth rate.”

However, there are still some challenging times ahead for the government - they must keep the public deficit under 3 per cent of GDP in 2010 – a threshold stipulated by the EU. At present, it’s thought it could reach 4.5%, but the government has resolved to keep it under control and in line with EU requirements. Stavrakis confirmed last week that, “the main target is for the deficit not to exceed 3 per cent, preferably 2.9 per cent.”

Keeping the deficit under control will be tough and measures already in place include better management of funds, more rigorous tax control and a freeze on the hiring on civil servants for 18 months. The civil service payroll will rise by 4.8 per cent in 2010 – an expense the government cannot afford, along with bonuses and pensions which are expected to increase by a huge 22.3 per cent. Revenues from VAT, capital gains tax and income tax are all down – VAT by 10.3 per cent, capital gains tax by a staggering 80 per cent and income tax proceeds by 14.4 per cent.

Despite the sharp drop in revenue, the minister said the government will continue spending money on development and no new taxes will be imposed. Efforts to better manage funds have intensified with the introduction of daily monitoring of expenses and income so as “.not to waste even one cent of taxpayer’s money,” said Stavrakis and he added, that the government does not plan to introduce any new taxes unless imposed by the European acquis communitaire.