By George Psyllides
STATE tax revenues dropped 10 per cent in the wake of a Eurogroup decision mid-March to impose losses on bank deposits as part of the island’s €10 billion bailout, it emerged yesterday, as international lenders warned of significant risks to Cyprus’ economic outlook.
The inland revenue department (IRD) saw a €59.2 million year-on-year drop in revenues in the first quarter, reversing the upward trend recorded in the first two months of this year.
In January and February, the department said it collected around €332.6 million, up 10 per cent compared with the same period last year.
However, it appeared that a Eurogroup decision to resolve Laiki, the island’s second-biggest bank, and impose losses on uninsured deposits – over €100,000 – in the Bank of Cyprus (BoC), ended the run.
The IRD said it collected some €526.9 million in the first quarter, compared with €586.2 million during the same period last year.
And this while Cyprus, with its banking sector severely crippled, is struggling to meet the conditions set by troika of international lenders – the EU, European Central Bank, and the International Monetary Fund (IMF).
The IMF said it expected the island to return to growth in 2015 although risks to the outlook remained significant.
“On growth prospects, the macroeconomic assumptions in the program take into account several factors that are expected to affect growth in the short and medium run, including the fiscal adjustment underway, and the recent policy actions in the financial sector,” said IMF spokesman Gerry Rice. “Having dealt with the key problems up front, as is the case under the program, growth is expected to resume in 2015, supported by a favourable international tax regime, a well-educated labour force, strong institutions.”
Rice however, acknowledged that given the situation in the banking sector, including controls introduced to prevent the flight of capital, “macroeconomic uncertainties, and risks to the outlook remain significant. That’s something to which we will be paying great attention to as we move forward.”
The government is eager to get back on track, reiterating yesterday that BoC’s return to normalcy was overdue.
The bank, the island’s biggest, was still in administration awaiting the final rate of the so-called haircut on deposits to recapitalise the stricken lender.
Depositors will receive equity in return.
Deputy government spokesman Victoras Papadopoulos said the BoC should have already been out of administration and the new shareholders should have received their stock.
“It is a matter we are monitoring and discussion with the Central Bank and the troika. There are problems, we recognise them, but they can be overcome,” Papadopoulos said.
By George Psyllides