Finance Minister Harris Georgiades reiterated his position that he rules out additional fiscal consolidation measures aiming at producing a primary surplus in excess of 3 per cent of the economy as this “would undermine” prospects.
“I would like to make clear that we neither want nor are asking for, nor will we adopt any fiscal relaxation in our fiscal targets,” Georgiades told delegates at a conference in Nicosia on Tuesday according to the emailed transcript of his speech. “Contrary to others in Europe, we don’t believe in deficit policies nor consider that growth comes through deficits or debt. It’s the other way around”.
The finance minister’s comments came less than a week after the vice-president of the European Commission Valdis Dombrovskis who is in charge of financial stability and European Commissioner Pierre Moscovici sent a letter to Georgiades asking for explanations over Cyprus’s 2017 draft budget which provides for more spending than Cyprus’s economic growth next year would justify.
Georgiades who dismissed the two commissioners’ criticism as unjustified last week, said that Cyprus’s fiscal policy is credible and predictable and thus allowed the restoration of confidence and return outgrowth. Cyprus has been generating a primary surplus, which is the sum of public revenue minus total expenditure excluding interest payments on government debt, of around 2.5 per cent of gross domestic product since 2014 and next year’s budget is forecast to generate a 2.1 per cent primary surplus, he continued adding that “only one or two other countries” are trying to do the same.
“These are the true figures which are not disputed by anyone, including the Commission, and likewise the parameters on which the (draft) budget is based, like for instance the forecast growth rate will range between 2.5 per cent and 3 per cent,” he said.
The finance minister said that while he rejects any increase in taxation and spending, any spending cuts, “contrary to what the Commission implies,” spending cuts would have to be accompanied by reduction in taxation in equal measure to ensure a neutral impact on public finances which would refute Europe’s “meretricious dilemma” of having to choose between austerity and growth.
Georgiades said that Cyprus was able to restore market access through the financial assistance extended by the European Stability Mechanism which financed together with the International Monetary Fund, Cyprus’s adjustment programme in 2013 to earlier this year. The improved confidence in the Cypriot economy is reflected in the increase in bank deposits, inflow of foreign investment and sovereign rating upgrades.
He also said that he was relieved to see the EU sign a trade agreement with Canada which was threatened by a veto raised by Wallonia, one of Belgium’s regions. “I was puzzled that the EU’s near failure to complete a trade agreement with Canada,” he said. “Open markets and competition have to be preserved and strengthened”.