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Primary surplus ‘maybe’ by 2015, says minister

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By Gregoris Savva

FINANCE Minister Harris Georgiades did not rule out achieving a primary surplus in 2015, but warned that the economy’s prospects could be jeopardised if there are signs that the course of the adjustment programme was terminated for political or other reasons.

Speaking to the Cyprus News Agency, Georgiades said next year’s expenditures will be slightly increased, mainly due to a rise in co-funded (with EU) development projects and social cohesion programmes.

Primary expenditure (does not include servicing of debt) is expected to reach around €5.9bn in 2015, compared to €5.8bn this year, a 2.33 per cent rise. Debt interest is estimated at €684m from €781m in 2014.

“Fiscal goals are comfortably met with this budget, which entails a small rise in primary expenditure,” Georgiades said. “To be exact, not only are those targets met, but we also expect that we will exceed them by a substantial margin, like in 2014.”

Initial forecasts set the primary deficit for 2014 at 4.25 per cent of GDP but has since been revised to1.3 per cent of GDP, or €210m.

The forecast for 2015 is 1.6 per cent, or €258m, a target that Georgiades believes will be comfortably surpassed.

“This goes a long way towards restoring confidence and the prospect of raising funds from the markets because it shows the course of public debt,” the minister said.

The public debt level was also expected to be better in 2014 – from the forecasted 117 per cent of GDP to 113 per cent, barring any negative developments.

Cyprus public debt as a ratio of GDP was expected to peak in 2015, at 126.2 per cent, but Georgiades said that will happen this year at much lower levels.

The minister said fiscal improvement was a reflection of the real economy.

Georgiades does not expect the economy to contract more than 3.0 per cent in 2014 – the adjustment programme forecasted 4.2 per cent. On a quarterly basis the 0.3 per cent contraction was the best performance since the Mari naval base blast in July 2011 that decimated the nearby Vassiliko power station and brought the economy to its knees.

Unemployment, expected to reach 18.6 per cent this year, will fluctuate around 15.5 per cent and for the first time since 2008 there will be a reduction on an annual basis.

“It looks like unemployment peaked in 2013 and not 2014,” he said.

But he warned that the positive prospects being created should not be jeopardised for political or other reasons.

The minister said proper implementation of the programme brought upgrades from ratings agencies, confidence from the markets and investors, exhibited by the issue of the seven-year bond after three years, as well as investors for Cypriot banks.

“This prospect … which affords the state the ability to borrow directly from the markets, a prospect that is becoming more feasible much earlier than expected, will be put in danger if the impression is given that the policy is terminated,” he said.

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