The government is not in a rush to revise its estimates upwards despite encouraging data, the finance minister said on Thursday, adding that measures will be taken to keep the economy on track but they will not include taxes.
“We remain very conservative and cautious in our estimates. We will not rush into thinking that the difficult times have passed,” Harris Georgiades told reporters.
If Cyprus implemented the measures and reforms consistently then “we can, sooner than what some might expect, get out of this difficult situation,” the minister said.
He refused to say that Cyprus was on the way to recovery: “We are on a course, which, if followed consistently, will certainly lead us to recovery.”
Georgiades’ caution is not without reason.
Though recognising the better than expected performance of the economy, international lenders anticipate deterioration in the second half of the year.
According to their draft report on the first review of Cyprus’ programme, both the primary balance as well as the overall budget balance exceeded their targeted values, by 1.6 per cent of GDP and 2.3 per cent of GDP, respectively.
“A year-on-year comparison for the first two quarters shows an improvement in both the primary and the overall balance of 2.2 per cent of GDP,” the draft said.
The main factors behind the positive outcome were tight expenditure controls, sizeable consolidation measures, but also one-off revenues of 1.6 per cent of GDP from the sale of licences for gas exploitation and higher dividends due to extraordinary Central Bank profits.
However, “given the weak macroeconomic outlook and the projected further reduction in employment in the third and fourth quarter of the year, it is likely that the budgetary outcome in the remainder of the year will gradually worsen,” the report said.
Georgiades said there will be additional measures in an effort to bring the economy on a sustainable path.
The aim was to take the necessary decisions and remain on track so as not to allow yet again “third parties to determine what our policy would be.”
The effort to correct public finances will not be based on taxes.
“We think this policy does not yield the expected results,” he said.
He was quick to add that a lot of taxes had to be imposed previously because “we are forced to implement them whatever the difficulties they entailed for households and the economy’s productive sectors. But the direction is certainly the one of rationalising and cutting expenses.”