Cyprus's government and opposition parties agreed a package of budget austerity on Friday and more is in store after a massive munitions blast destroyed the island's largest power station.
Already under pressure from its exposure to debt-riddled Greece and prohibitively high borrowing costs on international markets, party leaders said they had agreed on an initial package, though details were scant on specifics.
"The dialogue will continue for the adoption of additional measures, with a priority for measures short-term in nature," government spokesman Stefanos Stefanou said.
Party officials present at a meeting between President Demetris Christofias and party leaders said it included privatising the island's stock exchange.
Stefanou said the package was on the basis of proposals unveiled on July 1 – which included provisions for the dismantling of three semi-government corporations and adjustments to pension contributions of civil servants – and subsequent proposals made by political parties.
Party officials said the budgetary cost of the measures were difficult to quantify because some of them would be implemented over the long term.
Facing rising borrowing costs on international markets because of pressure on euro zone periphery debt and exposure of its banks to Greece, Cyprus was facing economic woes even before the July 11 blast worsened them greatly.
Economists say Cyprus could face a bill of at least 1 bln euros from damage to the plant and widespread disruption of business from rolling power cuts.
Cyprus's GDP is worth 17.4 bln euros, and its annual budgeted spending is about 8 bln euros.
GROWTH STAGNANT, BAILOUT WARNING
It was unclear whether the measures factored in the economic impact from the blast, which finance ministry sources say has wiped out Cyprus's growth projections. Very preliminary estimates now suggest Cyprus will register zero growth this year, from a previous 1.5% forecast.
Earlier in the week, Central Bank governor Athanasios Orphanides warned that Cyprus could be forced to seek a bailout unless tougher economic austerity measures were taken immediately. . So far, Cyprus has been able to meet its financing requirements domestically, and in a rare foray into international bond markets where trading on the paper that it does have is thin.
Cyprus has already asked for European Union aid to deal with the aftermath of the explosion, and EU officials are assessing the damage.
With a budget deficit of 5.1% of GDP and overall public debt of around 60%, Cyprus is in much better fiscal shape than euro zone bailout recipients Greece, Ireland and Portugal.
But action needs to be taken fast to curtail a deterioration, said Averof Neophytou, vice chairman of the main opposition Democratic Rally party.
"We need to reduce the deficit to 4% of GDP this year and 2% next year," he said, saying his estimates of spending cuts ranged between 400 and 600 mln euros. "That calls for significant reduction in spending."
