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2014, probably the ‘most difficult’ year

Finance Minister Harris Georgiades

By George Psyllides

NEXT YEAR will probably be the most difficult year for the Cypriot economy, the finance minister warned on Monday, but it is also the year to correct the ills that led to its collapse.

Presenting the 2014 budget to parliament, Harris Georgiades also stressed that there was no room for any increases in expenditure as he repeated that the government had no intention of revising its conservative forecasts.

“We remain cautious,” he told reporters. “We know 2014 will be a very difficult year. Perhaps the most difficult.”

The island’s economy has performed better than expected so far as Cyprus reeled under the terms of an international bailout, which saw its banking sector decimated in return for €10 billion.
Despite the results, international lenders expected 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.

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.

The budget reflects the difficult times expected ahead, Georgiades said, adding however, that 2014 was the year when the ills plaguing the economy must be corrected.

“Let me stress that 2014 must be, and will be, the year when the most crucial decisions will be made to correct all those that led the economy to this difficult position,” Georgiades said. “It is the time to take and enforce the decisions, which were postponed in the past.”

The budget is the island’s first post-bailout budget, providing for a 10 per cent, or some €626 million cut in net spending compared to 2013.

Main opposition AKEL criticised the government for not spending enough on development.

Georgiades said there was “simply no room” to increase expenditure but was prepared to listen to any proposals as long as they included suggestions on how to save money from elsewhere.

“It is not as if we have more to spend but we are putting it aside,” Georgiades.

Cyprus has been shut out of international markets since May 2011, leaving international assistance under painful terms as the “sole source of financing”.

“Everyone’s aim should be to restore credibility, upgrading the Cypriot economy’s credit ratings and eventually returning to the markets,” the minister said.

The minister said growth would come from the private sector and the government was not planning on imposing any more taxes.

“We will not continue the policy of the past 18 months,” he said.

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