Cyprus Finance Minister forecasts 4% GDP growth

Cyprus Minister of Finance Makis Keravnos forecast a real GDP growth rate of at least 4% for the Cyprus economy in 2005 and maintained the ministry’s forecast of a budget deficit of 2.9% of GDP in 2005, compared with 4.2% in 2003.

In the first quarter, real GDP grew by 3.9% year on year and the budget recorded a surplus, thanks mainly to the tax amnesty that ended in February. However, Keravnos warned that high oil prices will have an impact on the public-sector payroll, because of the wage-indexation mechanism.

Fuel-price increases will add another CYP 10 mln to the payroll, he forecast.

State revenue from the consumer tax on unleaded petrol (excluding VAT) amounted to CYP 132 mln in 2003, CYP 149 mln in 2005 and CYP 50 mln in the first five months of 2005.

The inflation rate is forecast to fall to 2.5%, public debt is projected at 69.1% of GDP but the unemployment rate is expected to rise slightly, to 3.5%.

The minister noted the government’s recent achievements, including entry into the Exchange Rate Mechanism (ERM2) on May 2, the extension of the public-sector retirement age to 63 and the recent sharp cuts in official interest rates.

He added that around CYP 20 mln is included in this year’s budget for environmental projects. Development expenditure is expected to reach around CYP 400 mln n 2005, compared with CYP 351.8 mln in 2004.

Keravnos also reiterated the government’s commitment to improving productivity, reducing dependence on tourism and reforming the market for government bonds.