Cyprus launches EUR 300 mln stimulus package

President Demetris Christofias announced a new stimulus package worth EUR 300 mln on Tuesday to accelerate the growth rate of the local economy and to maintain unemployment at low levels. The government has earmarked about EUR 51 mln for the tourism sector and EUR 245 mln will go to help the struggling construction sector.
Speaking after an extraordinary meeting of the cabinet, Christofias said that in the tourist sector the government decided to abolish the overnight stay fees which the local authorities collect from hotels, lower the landing fees paid by airlines, cut the VAT rate from 8 to 5% on overnight hotel stays and to implement a plan to boost local tourism.
“These measures will cost EUR 51 mln,” the president said.
For the construction industry, Christofias announced measures worth EUR 245 mln which include a new loan plan for low and middle income couples and the construction of new refugee estates, to be added to the previously announced projects for the construction and repair of school buildings and for social care.
At the same time, the government decided to maintain existing deposits in the banking system totalling EUR 700 mln for a further three and a half months, in an effort to boost the banks’ cash flow and repeated a call on banks to lower interest rates.
President Christofias told reporters the global economy is facing a very difficult time and forecasts for 2009 are bleak. “The Cyprus economy is expected to be affected to a relatively smaller extent, especially compared to Eurozone countries”, he noted.
The president said the government has effectively and timely drawn up a new plan to handle the crisis.
Christofias said the new measures took into consideration the suggestions of the political parties, the unions and other organisations as well as the state’s fiscal capabilities.
He said that the framework of the government’s policy to boost the economy is based on five pillars, aiming to enhance the implementation rate of the development programme, to accelerate major development projects focusing on boosting governmental housing programmes, to provide additional support to local authorities to implement local projects, and to simplify administration procedures to overcome bureaucratic obstacles.
The president said that “within this framework the private sector must play its own role and contribute constructively to combating the financial crisis.”
He noted that the government is following a sound economic strategy during the current unprecedented international financial crisis and that the policy that has been adopted supports the sensitive sectors which have been affected mostly by the crisis.
Christofias called on banks to reduce borrowing rates. He also said that Finance Minister Charilaos Stavrakis will sign an agreement with the European Investment Bank in March, providing for loans under favourable conditions, amounting to EUR 300 mln, to finance primarily small and medium-size enterprises.
With regard to the labour sector, the president said that given the fact that unemployment is expected to rise up to 4.5%, the government intends to promote a series of measures to maintain the rate at low levels.
He said that these measures provide for additional efforts to find jobs for the unemployed, reevaluation of the strategy for the employment of foreigners from third countries, intensification of the campaign to combat illegal employment, introduction of a new vocational programme for the unemployed and a programme to train employees who may be underemployed due to problems which businesses face.