— To lower fiscal deficit to 3.7% of GDP
Cyprus Finance Michalis Sarris said Thursday that the prospects of the economy for 2006 appear to be “encouraging,” adding that during 2006 it is predicted that the economy recovery and the stabilisation of public finances would continue.
Speaking before the House of Representatives during the discussion of the State Budget for 2006, Sarris said that all basic macroeconomic figures were projected to record “further improvement” in the new year.
Sarris said the 2006 Budget presented a net income of CYP 2.3 billion (USD 4.74 billion) and net expenditure of CYP 3.3 billion (USD 6.8 billion), an increase of 13.5% and 6.1% respectively, compared to the 2005 Budget.
He added that the Budget was based on three pillars — President Tassos Papadopoulos’s Administration Programme, the Revised Convergence Programme, and the National Action Plan for the Lisbon Strategy — aiming to consolidate public finances and continue the smooth integration of the Cyprus pound in the Exchange Rate Mechanism II (ERM2).
Referring to the Budget for 2006, Sarris said that “it continues to serve the government’s strategic aims for the economy, that is the improvement of the public finances without compromising the social benefits.”
He added that the fiscal deficit was projected to drop to 3.7% of the Gross Domestic Product, compared to a projected 5.8% in 2005 and 6.3% in 2004.
Sarris noted that with the implementation of measures improve public finances within the Convergence Programme, the fiscal deficit is expected to drop to 1.9%.
He added that “the growth rate is expected to reach 4.2% and unemployment at 3.7%,” noting that an important element is the projected improvement of the productivity rate at 2.7% and that inflation would be around 2.5% in 2006.
Sarris said “the economy’s fiscal course in 2006 would be the criterion by which we will be evaluated to enter the eurozone.”
The Minister of Finance said that in 2005 the government promoted significant social measures and furthermore entered ERM II.
“The fiscal policy for 2006 aims at further reducing the deficit to 1.9% of GDP. This aim conforms with the strategic aim to enter the eurozone,” he said, adding that the Budget further promotes the restructuring of public expenditure to the benefit of development and social programmes.
Sarris said the government’s philosophy was based on the fundamental principle of restructuring the state mechanisms, so that it would become more flexible and efficient.
In his speech, Sarris said the revised proposal would be submitted to the EU next week and noted that “the fiscal aims set out and the projected fiscal policy measures are not much different from those included in the previous programme.”
He added that meeting the aims set out would also “facilitate Cyprus’ course for accession to the eurozone on January 1, 2008,” which would bring “significant advantages to the Cypriot economy and practical and tangible benefits to the citizens.”
Referring to the National Action Plan for the Lisbon Strategy, he said the priorities concerned further restructuring the economy in favour of high added value activities, the long term viability of public finances, improving the structure of public finances to the benefit of expenditure enhancing economic development and social cohesion, promoting research, innovation and the information society, strengthening competition and improving the whole business climate, upgrading the basic infrastructure, further improving the development of human resources, strengthening social cohesion, and safeguarding the sustainable environment.
As regards the Social Policy, Sarris said “the government’s aim is to construct a sound and far-reaching social alliance that will aim at adopting a new social contract, which will have specific aims and timeframes,” adding that “the political leadership must show courage to change and continuity in supporting politically difficult social reforms.”
He added that “social reforms have a political cost, but we must consider the multiple cost of idleness and maintaining the current situation.”
