Finance Minister Vassos Shiarly has described the 2013 state budget as the most crucial in the country`s contemporary history.
The 2013 stated budget incorporates the fiscal consolidation measures agreed with the Troika of European Commission, the European Central Bank and the International Monetary Fund, as part of Cyprus` application for financial assistance from the EU bailout mechanism. The budget is set to be approved by December 18.
Analysing the budget at the House plenary, Shiarly called for unity among all political parties, "to tackle the unprecedented position out of which only united we can emerge" and compared it with the situation in 1974 after the Turkish invasion, which shattered the Cypriot economy and resulted in the occupation of 37% of the island`s territory.
"There is no longer room for complacency … Only through unity at home we will be able to defend the interests of the Cypriot people. Our people have pride, dignity and the will to work for the best as amply demonstrated after 1974. We should however, both the executive and the legislature, live up to the expectations of society," he stressed, describing the 2013 budget as the most crucial in Cyprus` contemporary history.
The Finance Minister warned that 2013 will be "particularly difficult" due to the adverse external environment but also due to the anticipated shrinkage of the banking sector, heavily exposed to the Greek economy, the decline in domestic demand, as a result of austerity measures and the continued correction in the construction sector.
The Cypriot economy is projected to shrink by 3.5% of GDP, he added.
Shiarly said the primary deficit for 2013 is estimated at 0.5% of GDP, whereas public debt is projected to reach 85.5% of GDP compared with 71.1% in 2012. He explained however that the 2013 debt includes the rescue of Cyprus Popular Bank with the acquisition of shares worth of 1.8 billion EUR which corresponds to 10% of Cyprus 17.9 billion EUR GDP.
The budget provides for public expenditures worth of 7.01 billion EU marking a 5.8% reduction compared with 7.45 billion in 2012. Pubic revenues are projected to reach 5.86 billion in 2013 increased by 1.3% compared with a revised 7.78 billion of 2012. Development expenditures are considerably reduced to 802 million EUR down by 21.2% compared with 1.01 billion in 2012.
The memorandum agreed with the Troika last Thursday provides for the implementation of measures totaling 3% for the period of 2012 – 2013. This will mainly be achieved through the implementation of scaled salary cuts in the wider public sector starting from 6.5% for salaries between €1.001 all the way to 12.5% for salaries above €4.000, the freezing of the Cost-of-Living-Allowance, VAT increase to 18% and the introduction of immovable property tax. The primary aim of the memorandum is to continue the on-going process of fiscal consolidation in order to achieve a 4% of GDP primary balance in 2016 and maintain at least such a level thereafter.
"Through the implementation of these measures we will restore our credibility so that gradually will be able to borrow from the international markets as is the primary target of the Memorandum of Understanding with the Troika. These facts render the 2013 state budget as the most decisive for the future course of the Cypriot economy," he concluded.
Excluded from the capital markets since May 2011, Cyprus applied for financial assistance on June 2012, after its two largest banks sought state support to cover their capital shortfalls due to the haircut of the Greek sovereign debt, as well as covering its fiscal needs. The size of the bailout is estimated to reach €17.5 billion, up to 10 for the banking sector, 6 billion for refinancing maturing debt and 1.5 billion to plug the fiscal deficits for the period of 2012 -2016.
